First Time Home Buyers: What Are Your Options?

There are so many choices, how do you decide exactly what is right for you? The most important thing to keep in mind is to take your time with the process. It’s a good idea to have an idea in mind of the basics you are looking for in a home, as well as the type of neighborhood you would like to live in, but to also keep an open mind when you first begin looking.

Once you start looking around the city you are interested in, you can begin to narrow down parts of the city that seem to suit you best. From here, you can focus on having your real estate agent search for homes that fit your parameters within those parts of the city. As well, you have your real estate agent looking for specific properties, like one with a fenced yard; however, it is important to keep in mind that these types of amenities are things that can be added onto the home. You do not want to narrow your search so much that you miss your dream home that simply doesn’t have a fence already built. This is something that can easily be added.

Before you even start the physical search for your first home, it’s essential that you spend some time researching lending institutions and current mortgage rates for the mortgage you can afford. If you find a lending institution that you like, you’ll benefit from going ahead with the pre-approval process, to determine exactly how much money an institution will finance you for. This will help you to determine your price range before you search for a home.

Although the standard used to require at least 10-20 percent down payment on a new home, many lending institutions have begun offering a special first time home buyer mortgage. These mortgages offer a special down payment starting around 3 percent. Some will allow for a full conventional loan with zero percent down. Remember that even while it may seem that a financial institution is really cutting you a break, there are some disadvantages to putting a limited amount of money down on a home.

These disadvantages include acquiring more "points". This often means you will pay more in closing costs to secure the property, or you may not be eligible for certain low interest rates that the institution offers. Another disadvantage includes the requirement for Private Mortgage Insurance, or PMI. This is a secondary insurance that will be rolled into your mortgage payment and covers the lending institution in case you are unable to pay the remainder of your mortgage commitment. It works in a similar fashion as a down payment, as a "security" for the bank.

Keep in mind that there are several other options available to first time home buyers, although many of these require qualifying through the government. Depending on where you live and how much income you make, you may qualify for a home loan or an available property through HUD, Housing and Urban Development or through the FHA, Federal Housing Administration.

First time home loans, FHA, and HUD loans are for first time home buyers of average or modest means that want an opportunity to get started. These are not loan options that will work for someone looking to purchase their first home of $500,000 or more, unless they are living in a high cost area.