First time homebuyers often find many obstacles in their paths to homeownership.  The important thing to remember is that every homeowner was once a first-time buyer.  In many cases, the tax benefits of owning a home make it less costly than renting a similar home. 

It’s no longer necessary to provide a twenty percent down payment.  In fact, some loan programs require no down payment at all and others allow monetary gifts from family members, employers, or others.  Some programs even provide down payment funds or closing cost assistance. 

There is a wide variety of programs to help first-time buyers and one of my specialties is assisting people in successfully navigating through what can be an intimidating process.  I’ve built a network of lending professionals who will help find the loan that best suits you while you and I are searching for the home that best suits you.

Q: Who is a first time homebuyer?
A: A first time homebuyer is anyone who has not owned any interest in a home for the last three years.

Q: How do first time homebuyer programs work?
A: Programs may offer eligible borrowers below market rate mortgages, down payment assistance programs, grants, homebuyer education or a combination. Some programs may have income restrictions. 

Q: What are some of the special first time homebuyer programs
available in Washington?
A: A variety of programs is available, including:

• Washington State Housing Finance Com­mission offers special financing and home­buyer education. 
   

• Rural Economic Community Develop­ment (RECD) loans offer financing for 100 percent of the appraised value of the rural home you buy. Income restrictions apply.
   

• Federal Home Loan Bank of Seattle Home $tart Program uses grants to pro­vide $3 for each $1 a prospective home­owner saves, up to $5,000. The Home$tart Plus program helps households receiving public assistance by matching their savings $2 for every $1 up to $10,000. The grants cover down payment and/or closing costs. 

Q: What if I don’t qualify for these programs?
A: Other financing is available, including:

• Federal Housing Administration (FHA) loans that allow down payments as low as 3 percent. The seller of the house you buy may help pay your closing costs, further reducing your upfront costs.
   

• Veterans’ Administration (VA) loans pro­vide no-down payment financing for veterans. The seller of the house you buy may help pay your closing costs.
   

• Zero Down Payment Financing loans al­low buyers with good credit to finance 100 percent of their new homes’ value. Sometimes an additional 3 percent of clos­ing costs may be financed – for example if you purchase a $150,000 home, you may fi­nance $154,500.
   

• 80/20 Mortgages provide two mortgages to buyers with good credit. The first mort­gage is for 80 percent of the sales price and the second is for 20percent. Setting up two mortgages eliminates monthly mortgage in­surance payments and saves you money.

Q: What is private mortgage insurance (PMI)?
A: Mortgage lenders traditionally required homebuyers to make down payments of 20 per­cent of the purchase price of their homes. On a $150,000 home, you would be required to make a $30,000 down payment. Since most home­buyers don’t have this much ready cash, PMI al­lows lenders to provide financing with lower or no down payments required. PMI protects the lenders from potential buyer default. Buyers are able to purchase homes before acquiring substantial down payments.

Q: Are condominiums or duplexes eligible for first time
homebuyer financing?
A: They may be. Check with your lender or real estate agent.

Q: What are closing costs and how much are they?
A: Closing costs are the fees associated with processing your transaction. Buyers and sellers traditionally pay different fees. Buyers pay costs associated with their loans, including points, ap­plication and credit report fees; prepaid interest, inspection fees, appraisal costs, mortgage insur­ance, hazard insurance, mortgagee’s title insur­ance and notary fees. Sellers pay brokerage commissions, transfer taxes, seller’s title insur­ance, notary fees and some other costs. Closing costs always are negotiable but could be from one to five percent of your loan. On a $150,000 loan, that would be $1,500 to $7,500 you are required to pay upfront. Some first-time home­buyer or other financing programs can reduce that amount.

Q: What are points?
A: Points are a percentage of the total loan and increase the lender’s yield. For example, if you pay three points on a $100,000 loan, you will pay $3,000 up front at closing.

Q: What is title insurance?
A: Title insurance protects against losses resulting from undiscovered title defects. There are two kinds of policies. The seller of your home pur­chases a title insurance policy to protect your interest in the home and you purchase a title in­surance policy to protect your lender.

Q: Can I get a home loan if I am self-employed?
A: Yes. Many lenders will help find a loan that works for you. Give me a call for details.

Q: How much can I afford?
The price you can afford depends on your in­come, debts, credit rating, down payment and the prevailing interest rate at the time you apply for a mortgage. Lenders have different rules, but most will expect your total housing costs (mort­gage, interest, property taxes and insurance) to fall within a range of 28-33 percent of your total gross (before deductions) income. They also will not want your housing costs plus other debts (credit cards, car payments, etc.) to exceed 38 percent of your gross income. Some lenders may allow you to exceed those percentages. Using the above ratios, to qualify for a $150,000 30-year mortgage loan at 5.5 percent interest, you would need to earn about $35,000 to $40,000 per year. 

Q: Why do interest rates go up and down?
A: It is nearly impossible to predict interest rate behavior. Rates are influenced by a variety of factors, including the government’s money supply, demand for loans, and inflation. Lower interest rates allow homebuyers to pur­chase more expensive homes.

Q: How do I find out if I can buy a home?
A: Talk to your banker, check a mortgage calculator on the internet or give me a call at (425) 344-5429 to arrange a free 30-minute consultation.