How Do People Afford Houses? Financing Your First House

Buying a home is part of the American dream. Yet, for many young people, purchasing a home seems impossible. Rising home costs, an inability to afford a down payment or closing costs, and stagnant wages have all contributed to the notion that young people cannot buy a house on their own.

Yet buying a home is very possible, particularly with first-time home buyer programs and a mortgage. Depending on your situation, you may qualify for a loan through or guaranteed by the federal government. Before starting the home-buying process, you can also take some steps to improve your chances of being approved for a mortgage and getting a reasonable interest rate.

At Eaton Realty, we work with both first-time homebuyers as well as experienced investors. We understand the Hillsborough County real estate market - and have in-depth knowledge of the programs available to first-time buyers. Reach out today to talk to a member of our real estate team about buying your first home.

Want to learn even more about financing your first home? Contact us to speak with an experienced Hillsborough County realtor.

What You Need to Know About Financing Your First House

The process may seem mysterious if you want to purchase real estate for the first time. It also may seem overwhelming, particularly when you’re in a hot market where housing prices have shot up considerably over the past few years.

Before you start to fret that you’ll never be able to afford a home, it’s a good idea to learn more about what you’ll need to do to qualify for a mortgage and buy a house. Several different programs are available for first-time homebuyers, as discussed in more detail below. You may be considered a first-time homebuyer if you:

Haven’t owned a principal residence for three years;

Are single and have only owned property without a house;

Have only owned a residence that is not permanently affixed to a foundation; or,

Only owned a property that did not comply with building codes.

To qualify for a mortgage, you will generally need proof of income for a minimum of 2 years, and that income must be enough to pay the mortgage. You will also need a down payment of 3.5% or more and a credit score of 620 or higher. However, as a first-time homebuyer, you may qualify for a mortgage with $0 down, a low income, and a credit score of 500. Your real estate agent can help you understand these programs and the eligibility requirements for each option.

Steps You Can Take Before You Start the Process

Before you start looking for a home, there are things that you can do to improve the likelihood of qualifying for a mortgage and getting a favorable interest rate. As noted above, you usually need a decent credit score, proof of income, and a down payment to buy a house. When you decide to buy a home, you can start doing things to make yourself more attractive to lenders.

The first step should always be to bring up your credit score. While you can be approved for a mortgage with a lower credit score - particularly as a first-time buyer - a higher score shows banks that you can responsibly manage your debt. Ideally, your credit score will be in the 700s. If it's lower than that, you can improve it by:

Making all bill payments on time

Bring any past-due accounts current

If you have credit card debt, work to reduce the balance

Check your credit report and correct any errors

Review the top factors affecting your credit score (on your credit report) and address those issues

Next, you should work to build up your savings. This may be challenging if you are also trying to pay off credit cards, but it’s important if you want to be able to buy a home. Try to cut costs wherever you can and sock that money away for a down payment, closing costs, and other expenses.

Before looking at houses, you should also analyze your finances to determine what you can afford. Looking for houses with your dream kitchen or an amazing pool and outdoor space can be tempting. But if you’re barely able to make your mortgage payment, you’ll be “house poor” - and under a lot of stress.

Getting pre-approved for a loan may give you an idea of how much you can afford. However, remember that this pre-approval amount might not actually work for your budget. You will still have a lot of expenses for your house, from buying furniture to dealing with things like appliance repairs and maintenance costs. If your pre-approval amount is higher than you feel comfortable, don’t be afraid to stick to your original budget.

First-Time Homebuyer Programs Can Help You Finance Your House

First-time homebuyer programs are designed to reduce the barrier to buying a home by making it much easier to qualify for a loan. Depending on your situation, you may be eligible for a special government program, like an FHA, USDA, or VA loan.

Most people believe that conventional loans through a bank are the only way to borrow money to buy a house. Conventional loans can be harder to qualify for because they typically require a larger down payment, a higher credit score, and a lower debt-to-income (DTI) ratio. You may also need to purchase private mortgage insurance (PMI) if you don’t have a 20% down payment.

If you qualify for a conventional loan with a fixed interest rate, that is great news. These loans typically cost less over time compared to mortgages that the federal government guarantees. However, given the strict eligibility criteria, not everyone will qualify for a conventional loan through a bank or other lender.

The first alternative for many first-time buyers is a loan through the Federal Housing Administrative (FHA). FHA loans are available for people with lower credit scores and with a down payment of as little as 3.5% of the purchase price. They also have lower closing costs. FHA loans generally require mortgage insurance given that you will likely be putting down much less than 20% for a down payment.

The Department of Veterans Affairs (VA) also offers loans for service members, veterans, and surviving spouses. VA loans often require no down payment or mortgage insurance and allow borrowers to have a higher DTI ratio. They also offer higher mortgage amounts, which can be critical if you’re looking to buy in a high cost of living area.

If you’re looking in a rural or suburban area, you may also qualify for a loan through the U.S. Department of Agriculture (USDA). These USDA loans offer 100% financing if you qualify. However, income limitations apply based on area, so you may not qualify for a mortgage if you make more than the threshold.

Fannie Mae and Freddie Mac are part of the FHA, and they work with local mortgage lenders to offer conventional loan products, some of which require very low down payments. For example, Fannie Mae’s HomeReady loan is designed for low-income borrowers with a minimum credit score of 620. With this program, you can put just 3% down and won’t have to pay mortgage insurance once you have built up 20% equity in your home.

Finally, the Florida Housing Finance Corporation (FHFC) offers 30-year fixed-rate mortgages for first-time home buyers, veterans, and active duty military. These loans can be combined with down payment or closing cost assistance programs. To be eligible, the property you want to buy must be in Florida and a primary residence. You also must meet income, credit, and purchase price requirements and take a homebuyer education course.

It can often be challenging to determine which programs you qualify for - and what makes the most sense. A skilled Florida realtor in Hillsborough County can help you understand your options and work with you to get you into your very first house.

Thinking of Buying a House In Hillsborough County? Eaton Realty Can Help.

The thought of buying your first home in Tampa can be incredibly stressful, especially when you look at typical listing prices in Tampa Bay. Fortunately, there are several ways that you can finance your first home, ranging from a conventional loan to a special government program.

At Eaton Realty, we are dedicated to helping our clients become homeowners. We will explain your options for financing, connect you to the right lenders, and help you find the home of your dreams. We understand that buying a house for the first time can cause a lot of anxiety - and excitement! Our goal is to make the process as easy as possible for you.

If you’d like to learn more, fill out our online contact form or give us a call at 813-672-8022 to talk to a team member.

Related Articles For First-Time Buyers

• How To Prepare To Buy A Home & What To Expect
• First-Time Home Buyer Programs & Grants In Tampa
• Home Buyers Needs And Wants Checklist
• Buying a House vs. Renting an Apartment: Which Is Better?
• What Is Earnest Money & How Much Do You Need To Buy A Home?

The information disclosed above does not constitute legal or financial advice. Use this information at your discretion.