Have you made it to the point in your life where you’re ready to pursue home ownership? Congratulations! You’ve checked the boxes for college education and career, and now you and yours are ready to move into the next chapter of your life. There’s only one problem: figuring out a way to make it happen.
How to Purchase Your Dream Home
Buying a home is expensive, and unless you were fortunately endowed with an inheritance or cash comeuppance, you’re probably stressed over finding a way to turn your homeowner dream into a reality.
Fear not. We’re here to break down a few financing options available to you and show you that purchasing your dream home can actually be possible.
Conventional mortgages are typically in terms of 15 or 30 years, and usually require at least 10% of the purchase price of the property (if you put less than 20% down, you may be required to purchase mortgage insurance). Those who are seeking this form of mortgage, but don’t have enough in savings for a down payment, can take advantage of down payment assistance programs in order to secure the necessary funds. You’ll need strong credit in order to qualify for this type of loan in addition to proof of stable income.
Mortgages come with interest rates that are either fixed, unfixed, or adjustable. Although some fear the return of stagflation and a rise in interest rates, the data below shows that the average interest rate on a 15 year fixed rate mortgage is much lower than it was ten years—3.44% compared to 5.93%—meaning it could be your time to buy.
In addition to traditional mortgages from banks and financial institutions, you can also pursue government-backed loans.
- FHA Mortgage: Insured by the U.S. Federal Housing Administration (FHA), this program is designed for first-time home buyers. They’re easier to qualify for, and only require as little as 3.5% down. The benefits do come with a tradeoff, however, including less attractive interest rates and high mortgage insurance premiums.
- VA Loan: If you or your spouse was a service member, you may qualify for a loan from the U.S. Department of Veteran Affairs. Financing a home with a VA loan requires no down payment and does not require excellent credit. All veterans who benefit from this program are still required to pay a funding fee.
- USDA Rural Housing Loan: The U.S. Department of Agriculture Mortgage Loan can be used in designated areas and towns to help eligible applicants build, rehabilitate, improve or relocate. It requires zero money down and provides 100% financing in order to promote homeownership in less dense communities across the U.S. It’s a great option for first-time buyers who are flexible to move or already live in a qualifying rural region.
Many young, up and coming homeowners fearing that a traditional mortgage is a form of perpetual debt slavery. In addition to the weight of student loans, paying off a 15 or 30 year loan sounds particularly unappealing. Young buyers are instead turning to alternative financing options in order to purchase their homes.
- Hard money loans: Hard money loans have significantly shorter terms, with repayment plans that usually last around three years. Whereas conventional mortgages may have unfixed mortgage rates, these loans are almost always locked in at one rate (although the rate tends to be much higher). Buyers pursue local lenders for funding; for example, those looking to purchase their dream home in the Golden State may pursue Northern California hard money lenders to get fast financing without a minimum income or credit requirement.
- 203k Rehab Loan: An FHA 203k loan allows individuals to borrow money, using only one loan, for both home improvement and a home purchase. They’re designed for fixer-upper properties, and allow homeowners to enter a market at a much cheaper price. Since these loans are guaranteed by the FHA, lenders assume less of a risk, and are more likely to approve applicants. Borrowers will still be responsible for a down payment, though.
Gathering the money for your first home purchase may seem incredibly daunting, but it’s not impossible! Research your options and find the financing solution that works for you.