This is a question that I got the other day from someone trying to get first time home buyer loan and wanting to buy Santa Maria real estate.
Hey I had a few questions about buying a home. First off what kind of down payment is involved for a first time home buyer and what if your credit isn’t all that great???
First I am going to start with the obvious and then do a little clarification that always seems to get some a little confused, on down payment and closing costs. So this will be part 1 of the answer to the question.
Most loans done today are FHA which is just short for Federal Housing Administration. FHA loans are govt. sponsored loans so that pretty much explains why they are so prominent since they are really the only one’s with any money to lend. The other type of loans that are usually bank loans are conventional we won’t be going into that since it maybe too difficult to qualify in today’s market. So lets get started with some First Time Home Buyer Information and please keep in mind if you are I can help you get the financing for your home anywhere in the state of California. 😉
To do a FHA loan all you need CURRENTLY IS 3.5% down payment on a house. I want to make sure you caught that which is CURRENTLY. There is a lot of proposals and pressure to increase the down payment on a house to 5%. Aside from increasing the down payment to 5% there is also the possibility that minimum fico scores may be increased and the PMI was just increased. The PMI is Principal Mortgage Insurance, this does nothing for the homeowner this is solely for the benefit of the bank and is insurance in case the home owner were to default on the loan. On FHA loans a portion of the PMI is financed up front in the closing costs and can vary depending on your current credit scores. These are just a few things to keep in mind if you are contemplating on buying a house now or waiting for things to get lower or that super duper deal. If home prices do get lower but your down payment increases and qualifications to get approved gets more difficult and your closing costs become more costly. Then what does it matter what the price of the home is 6 months from now or a year from now if you no longer qualify for the home loan. So the food for thought is if you want to buy a home for sale on the Central Coast or a home for sale in Santa Maria, and you think they may get cheaper just keep in mind you may qualify today but not tommorrow.
Closing costs and Down Payment this is something that seems to confuse most first time home buyers. Your Down Payment is just want you need to bring into the game based off the purchase price so if you are buying a home for 100k then all you need to bring in is $3,500.00 which gets applied to the purchase price. Closing Costs is what you need to get the loan and this is sometimes a shocker to some first time home buyers because you usually need a lot more than just the down payment. The closing costs are what it will cost you to get the loan. Part of getting the loan as mentioned above is YOU pay for the PMI and that can vary depending on your credit score. But for this example we will use the 2.25 of your loan so add 2,250.00 then there is your escrow and title and lets just add $2,000.00 and there are your impounds. Your impounds are your taxes and your insurance not the PMI but homeowners insurance for the house and they collect this upfront and depending on the time of the year will dictate how much is collected up front due to your new property taxes. Let’s just say $3,000.00. Then there are loan costs for actually doing the loan whether you pay point and the admin costs associated with the loan. Let’s just add $2,500.00, and do remember these are just numbers purely for demonstration purposes only. Keep in mind that median price for homes in Santa Maria is slightly higher and is more around $200,000.00 and not 100,000.00. Median price for homes on the Central Coast is even higher and this example is just for illustration purposes only on potential closing costs it can actually even be lower, so don’t get scared just yet. 😉
PMI – 1,750.0
Escrow and Title – 2,000.00
Impounds – 3,000.00
Actual loan Costs 2,500.00
If you would like a loan Worksheet to help you figure your cost and payments Please let me know
So now going back to just $3,500.00 is a pretty small number BUT before you get discouraged keep in mind that in today’s market sometimes you can get the seller which when dealing with foreclosures is the BANK. Luckily for you the bank will sometimes pay for some of your closing costs ;-). This is where you need to make sure your team is on the same page with you and by your team I mean your Realtor that will help you negotiate with you on the contract and your loan officer that will help you get the loan, and who needs to know what you are trying to qualify for. So for this example it’s the $3,500.00 plus the $9,250.00 which is a total of $12,750.00 you will have to bring at closing. Most of the transactions on homes for sale in Santa Maria are currently either foreclosures or short sales and in most case the banks are paying up to 3% of the closing costs. Now homes for sale on the Central Coast such as San Luis Obispo or the 5 cities are have more normal transactions and the seller or homeowner may not be so inclined to pay for those costs as easily as a bank.
Okay now to other stuff and by other stuff I mean other loans. There are loans out there based on the community that you live and how much money is available to you as grants for new home owner ship. So in this respect check with your local Realtors that are usually aware of funds available. Santa Barbara county and San Luis does not have any special programs that I am aware of but I do know that Ventura County has some special programs as well as Kern so check with your local Realtors for special programs.
If you live in a rural area you can even still get 100% financing so NO MONEY DOWN and that leaves you with more money to pay for the closing costs and if the bank helps out even better. These loans are USDA loans. I know you think of that when you buy meat but they lend too. But they are usually for rural areas here locally for example you cannot buy a Santa Maria home but you can buy a home for sale Guadalupe or a home for sale in Nipomo with a USDA loan. There are some other aspects of the loan such as income caps and loan amounts these loans are more for lower and middle income not for your Mc Mansions. Go here to type your location to see if it is eligible for 100% financing its pretty simple. All you gotta do is follow the directions does not matter where in the country you are in this link will help you find out if the program is available in your location. If you have any questions on this just shoot me a comment.