Buying a house in 2022-2023 in US.
The American Dream is to earn a lot of money and buy your own home! Despite the situation in the world with COVID-19, the real estate niche in the United States, in certain regions, is gaining momentum. Buying a home in the US does not automatically entitle you to a residence permit, but you can invest in any home you like. This can be done from anywhere in the world or from here in the United States. In any case, the purchase begins with your reliable mortgage broker, without whom the transaction is impossible.
Each state and city has its own nuances, so a reliable broker will help you sort through all the details of the transaction in order.
When buying a home, no one will expect you to be an expert in this area, especially if you are buying a home for the first time, but still we want to bring you up to date, which will give you a huge advantage.
Examining your credit score
Before starting a deal, before you meet with a broker, first of all you need to determine your financial ability.
And also determine your true credit score for a mortgage loan. It is important to know that your credit score on Credit Carma is different from the true mortgage score that lenders use to make mortgage loans. The difference is less than 30-50 points.
When meeting with a broker, remember:
- In the process of buying a home, you can get many different offers. First of all, you need to talk to at least three mortgage brokers to get the lowest interest rate. Many first-time homebuyers make the mistake of signing up with the first lender they go to, missing out on tens of thousands of dollars in savings.
- Don’t let a mortgage broker check your credit score unless you’re 100% sure you’ll be doing business with that person. You risk lowering your credit score, which in turn will result in a higher interest rate on your mortgage.
- Please refrain from making any large deposits into your bank account unless you can prove where they came from.
- Also, refrain from financing (leasing) any major purchases such as cars, boats, furniture, before and during the mortgage approval process.
What is a mortgage
According to the National Association of Realtors, in general, only 10% of buyers of houses without a mortgage. Others receive a mortgage for a certain amount, usually for a period of 30 years.
So, how is a mortgage different from other types of loans?
- Low interest rates — about 3-4% per annum at the time of this writing.
- Extended repayment terms — Most people pay off their mortgages over 30 years.
- Rates and payments are usually fixed — most people «fix» their mortgage interest rate, so their monthly payment stays the same throughout the entire loan period. However, adjustable rate loans are also available.
- “Secured” loan – the mortgage is secured at the expense of the pledged property; if you fail to make the payment, the mortgage company may take your home (or foreclose you) to recover their losses.
In rare cases, you can use a mortgage to pay the full cost of a home, but most people put some of their money into the purchase.
The amount paid by the buyer is known as the «down payment». The mortgage covers what’s left.
For example, if you contribute $35,000 of your own money to buy a $350,000 house, you are paying a 10 percent down payment. The remaining $315,000 is covered by the mortgage.
Credit programs for the first purchase of housing in the United States
Today, homebuyers can choose from a variety of loan options.
More than 90% percent of buyers, including first-time homebuyers, end up using one of four popular lending programs:
- Ordinary home loan.
- Housing loan from the Federal Housing Authority (FHA).
- Department of Veterans Affairs (VA) home loan.
- Housing loan from the United States Department of Agriculture (USDA).
These programs are popular due to their availability, low cost and friendly attitude.
Each has unique benefits and your choice will depend on what exactly you are looking for when buying a home for the first time — (lower down payment, lower loan interest, lower income options, etc.)
Your loan officer will help you choose the right type of mortgage based on your needs. But you should be familiar with each of these programs beforehand to make sure you’re asking the right questions. For you, we have prepared a brief overview of each of them.
Ordinary home loan – down payment 3%
Conventional or “matching” mortgages are the type of loan that most buyers think of when buying a home. The term «compliant» means that these loans comply with the guidelines set by Fannie Mae and Freddie Mac.
A qualifying mortgage is often the best choice for homebuyers with good credit scores and a down payment of at least 10% interest.
However, there are three qualifying mortgage options for buyers with as little as a 3% down payment.
- Fannie Mae’s HomeReady loan
- Freddie Mac’s Home Possible loan
- The Conventional 97 home loan
HomeReady and HomePossible mortgages offer low down payments (from 3% percent) and flexible eligibility rules, especially for low-income homebuyers. They may even offer borrowers a rebate of up to $500.
Conventional mortgages (The Conventional 97 home loan) do not offer such a discount, but with them you can buy a house in a fairly economical way and at a low cost (interest rate is only 3% percent). This loan is most beneficial for buyers with a very good credit history.
FHA loan — 3.5% down payment
FHA loans are popular with borrowers with low down payments and those with credit history issues, requiring additional underwriting flexibility.
The biggest benefit of the FHA is that buyers with below-average credit scores can get mortgage approval.
FHA loans allow buyers with a credit score of 580 to receive a loan at 3.5% and a credit score of 500 at 10%. However, low credit scores should not be the result of a recent bad credit history.
FHA mortgage rates are often lower than the corresponding mortgage rates.
But because all FHA loans require mortgage insurance premiums (MIPs), the total cost of an FHA sometimes ends up being higher.
Credit (VA) — down payment 0%
The Department of Veterans Affairs Home Loan is a great program, with benefits that no other loan has. But to be eligible to receive it, you must be connected to the US military structure.
Available to veterans and active duty members of the US military, VA loans offer 100 percent financing, simplified loan approval standards, and access to the lowest mortgage rates available.
Over the past two years, VA mortgage rates have consistently exceeded rates on all other common types of loans. VA mortgage rates can be up to 40 basis points (0.40 percent) lower than rates for conventional comparable loans.
USDA loan — 0% down payment
The USDA loan, available in low-density rural and suburban areas, is another mortgage with no down payment.
A USDA loan offers lower mortgage rates, zero down payment, and cheaper mortgage insurance for low-to-moderate income borrowers.
But there is one important condition: the house must be located in a designated «rural» area in accordance with USDA standards. This usually means that it must be located in a city with less than 20,000 inhabitants.
How much down payment do you need to buy a house
Many first-time homebuyers feel they have to pay 20% of the value of the home. But this is far from true.
In fact, the average down payment for first-time home buyers is only 6%. When buying a house for $250,000, it would be only $15,000.
And there are credit programs that allow you to make a purchase with an initial payment of less than 6% percent. For example:
- FHA Loans — 3.5% Down Payment (Own Money or Non-Refundable Grant)
- VA Loans — 0% down payment
- USDA Loans — 0% down payment
- Loan Regular 97 — Down payment 3%
The main takeaway here is that initial payments can be flexible.
Your down payment should depend on your monthly income, your savings, the value of the home, and your overall home buying goals.
Briefly about the pros and cons of a larger down payment compared to a smaller one:
- Increase in down payment — lower interest rate and lower monthly payment, plus the ability to make a more attractive offer for the seller.
- Lower down payment — buy a house and start building capital sooner, save most of your savings for unexpected expenses.
Take a look at your personal finances and home buying goals to determine the right down payment for you.
The popular myth about the 20% down payment
The average down payment is much less than 20 percent. Why, then, do so many people think that 20 percent is the minimum?
That’s because the 20 percent down payment saves you having to pay for what’s called «mortgage insurance.»
Mortgage insurance is an additional payment line on your mortgage bill that often amounts to several hundred dollars per month.
Understandably, most buyers would prefer to avoid paying mortgage insurance whenever possible. That’s why some people are aiming for a 20 percent down payment.
This is just another benefit to consider when budgeting for a home purchase.
What are the down payment options
Most mortgage programs require a down payment, no matter how small.
Theoretically, this is money that you put into your own account for the cost of a house, but you can find ways to make the necessary down payment without emptying your savings.
One way is to find down payment assistance programs in your area.
Down payment assistance programs, usually run by local governments, of
fer low interest grants and loans to help you use the funds received to pay your down payment and/or closing costs.
How do you know if you’re ready to buy a house?
If you want to know if you are ready to buy a house, ask yourself four questions:
1) Do I have a stable job and reliable income for 1 — 2 years at the same job, income tax for 2 years?
2) Do I have enough money saved for the down payment and closing costs (average 3.5% of the home’s purchase price)?
3) Is my credit history strong enough?
Check your credit history.
4) Do I plan to stay in the house for at least five years?
If you answered yes to these questions, you are probably ready to get pre-approved for a loan and start looking for your dream home.
You should also calculate all your monthly loan payments, car loans (financial or lease payments), student payments, alimony, medical bills (if any), etc. — that is, everything that appears on your credit report. The maximum ratio between your monthly gross income and monthly expenses can not exceed more than 49%, including the full monthly mortgage payment on the house or trust our professionals.
Frequently Asked Questions About Buying a Home in the USA
What are the benefits of buying a home for the first time?
First-time home buyers sometimes have access to special loan programs and home purchase grants that other home buyers do not have. However, these types of programs are often targeted at first-time homebuyers who need a little extra help; for example, homebuyers with low incomes or bad credit. If you have excellent creditworthiness and make a lot of money, the benefits for first-time homebuyers may not be available to you, but you may not need them then.
Is the buyer charged a commission when working with a real estate agent?
No, real estate agents are «free» for homebuyers; the commission is usually paid by the seller. Moreover, in the interests of the parties, bypassing conflict situations, it makes sense for the home buyer to hire the same real estate agent as the seller of the house.
What is Private Mortgage Insurance (PMI)?
Private mortgage insurance (PMI) is an insurance policy. It makes homeownership possible for homebuyers who don’t want to pay a 20 percent down payment. You, as a borrower, pay PMI fees to protect your mortgage lender from default and foreclosure. If you can’t pay off your mortgage, the lender can «cash out» the homeowner’s PMI insurance to get back the money you’ve lost. Eligible mortgage lenders require PMI when a homebuyer makes a down payment of less than 20 percent.
What is a discount point? How do I know if I should buy it or not?
A «Point» or «Discount Point» is an additional fee you pay upfront to lower your mortgage interest rate. One point is usually worth 1% of the loan amount, which is $1,000 for every $100,000. Buying one pip should lower your interest rate by about 0.25%.
Do I need a home appraisal?
If you use a regular loan secured by Fannie Mae or Freddie Mac, a home inspection may not be necessary. It is required for government secured loans such as the FHA and VA. However, regardless of whether it is required or not, experts strongly recommend doing it. The inspector may find structural or system problems that you want to know about before you buy a home. And even if everything is in order, the inspector’s report will let you know how many repairs to expect in the first few years of homeownership.