First time home buyer? 

Let’s start here. How much money do you need as a down payment on a primary residence? Now this largely depends on the type of loan you get and the type of loan you get will affect how much you need on  a down payment.

Where to start when buying real estate.

Now when it comes to getting a loan in real estate, most people have two options. The first one is what’s called a conventional loan. The second is what’s called an FHA loan. Now a conventional loan is by far the most common out there, it makes up 72% of all home purchases according to a government census. A conventional loan is just a loan that’s not backed by the government instead; it’s issued by banks or private lenders. This means that with a conventional loan, you’ll typically need to come up with 10 to 15% as a down payment if you intend to live in the property as a primary residence, however, an FHA loan, on the other hand, is a government-sponsored loan. This means that they typically have lower credit qualifications, lower down payment qualifications, and usually it’s a little bit cheaper to close. And with an FHA loan, you can typically put down as little as three and a half percent, which means that on a $400,000 home, you can put down as little as $14,000. However, because that type of loan is way riskier for the bank.

 

They end up charging you a higher interest rate, and also what’s called private mortgage insurance, which is called PMI. This is an extra charge on top of your mortgage because you are statistically more likely to default on the loan if you’re an FHA borrower. Also, there are limits to how high of a loan that you can get with an FHA. This is to prevent people from going and buying like a $3 million homes just because they have $105,000 available to them. But at the end of the day, it’s really going to be up to you to do the math and determine which is going to be the right option for you and if it’s worth it to put less money down with a higher interest rate and also paying PMI.

Down payment on your real estate purchase

Save money on buying a home

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If it’s up to my recommendation personally, I would just recommend save up the extra money and just go with a conventional loan, if you do that, you’re going to end up paying less than interest, you’re not going to have PMI and you’re going to have a little bit more equity in the property at the time that you purchase it. And also sellers tend to take someone with a conventional loan a little bit more seriously because that person typically has better credit, stronger income and is more likely to close on their home.

 

So now that you figured out how much money you need to put down, it’s really important now that you figure out how to build your credit. And this is absolutely essential when it comes to getting a loan and buying your home. Because just like you’ll need a down payment, you’re also going to need a decent credit score. Now your credit score is able to show banks how likely you are to repay back any money that’s lent to you. And this is typically through credit card loans or auto loans or student loans or anytime you’ve had money loaned to you. This is basically your repayment history. Think of this is basically your loan prepayment scorecard or report card or whatever you want to call it, it’s your grade.

Check Your Credit Score

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Now ideally, you’re going to want a credit score above 740. This is the range where banks typically give you the lowest interest rate possible. And also this means that you get the most money back in your pocket. And then if you have above at 760, this is where banks will start to bend over backward to start giving you loans because you’re less likely to default on that. So they start giving you lender credits and other rebates and other things that really just save you a lot of money in the long run. Not in terms of how to build your credit.

 

And with this, I have to mention this because it’s extremely important. And that is to make sure you pay off all high-interest rate debt prior to buying a house. This means that you need to pay off any credit card debt, any high-interest rate personal loans, or anything that might hold you back because this will severely limit the type of loans that you can get if you have any sort of high-interest rate debt outstanding. Now with this, I usually get the question of whether or not you should pay off a student loan or not or whether or not that’s bad debt or if that could be good debt. And my personal recommendation is to always make sure that student loans are ideally paid off prior to buying a home.

 

How to Buy a Home

Go to Part 2 – Getting Prequalified  >>

Timing

Getting an Agent

Timeline 

Making an Offer


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