Buying your first home can be exciting and nerve-wracking at the same time. There’s so much to think about and plan for, so where do you begin? The team at Steiner homes would like to offer you some guidance. Here are three tips for the first-time homebuyer in Indiana.
Plan Ahead Financially
If you want to buy a home, it’s essential to plan ahead. You’ll want to start saving for a down payment. Depending on your financing options, a down payment can vary from as low as 3.5% up to 20%. You can use a down payment calculator to set a goal and start saving.
Understand that purchasing a home includes appraisal fees and closing costs. You can typically expect 2% to 5% of the total purchase price in additional fees. Some fees can be rolled into the loan, while others may need to be paid upfront, such as appraisal fees. You may also want to set aside some money for moving costs, upgrades, furnishings, and immediate home repairs.
Knowing how much you will need to get into a home will also help you determine how much home you can afford. Home affordability calculators are available that will evaluate your debt, down payment, credit score, income, and location to help you narrow down your budget.
Consider First-Time Buyer Programs
Several programs are available at the federal and state level to help first-time homebuyers get into the home of their dreams. These include:
Federal Housing Administration
The Federal Housing Administration (FHA) loan is the most popular government-backed mortgage in the United States. FHA loans are available through a variety of qualified private lenders, including banks, credit unions, and mortgage companies. FHA loans generally require a 3.5% down payment, offer competitive interest rates, and up to 6% of the loan can be used to cover closing costs and fees.
Borrowers with a credit score as low as 500 may qualify, although the down payment requirement may be higher for borrowers with less than a 580 credit score. FHA loans are designed for borrowers with moderate incomes to help them get into a home of their own.
IHCDA First Place Program
The Indiana Housing and Community Development Authority offers a second mortgage of up to 6% of your home’s purchase price to help with down payment and closing costs. This second mortgage doesn’t require monthly fees or interest charges, and if you stay current on your homeowner duties and live in the home for nine years, that total amount is forgiven. If you sell or refinance during that time, you’re responsible for repaying the second mortgage. To qualify, you must be applying for a 30-year FHA loan and be a first-time homebuyer, buying in a targeted area, or a veteran.
Other basic requirements include a credit score of 640 with a debt-to-income ratio under 45% or a credit score of 680 with a debt-to-income ratio between 45% and 50%. Depending on location and household size, you must also meet the current income requirements of $72,300 to $120,820. The home must be located in Indiana as a single-family home, be your primary residence, and fall between $294,601 and $399,400 for purchase-price limits.
Mortgage Credit Certificate
Indiana’s Mortgage Credit Certificate can help lower your tax bill. The MCC is a federal income tax credit equal to up to 25% of the amount you borrow in Indiana, with a cap of $2,000 per year. You can take advantage of this tax credit throughout the entirety of your 30-year mortgage. The MCC does require an $800 program fee to participate.
United States Department of Agriculture
The United States Department of Agriculture offers a mortgage program for potential borrowers who have low-to- moderate income or don’t qualify for a traditional mortgage. USDA loans are zero-down-payment loans for eligible rural homebuyers. A USDA loan is similar to an FHA loan in that the loan is guaranteed by the USDA, which allows borrowers to get low-interest rates and forego the down payment. These types of loans do require the borrower to carry mortgage insurance.
USDA loans require the homebuyer to occupy the home as their primary residence, prove U.S. citizenship, and demonstrate a reliable income for the past two years. The borrower needs to have an acceptable credit history and will be required to make monthly payments, including principal, interest, taxes, and insurance, that equal 29% or less of their monthly income. If a borrower has a credit score of 680 or higher, the USDA may consider higher debt ratios. Applicants with a credit score of 640 or higher also enjoy streamlined processing for a faster approval time.
Once you’ve decided you’re ready to tackle homeownership, it’s time to get pre-approved for a mortgage through the bank, credit union, or mortgage company of your choice. You’ll want to research rates, terms, and any fees associated with the mortgage to compare lenders. Several documents will be required during the pre-approval process. These include:
- Tax returns.
- Pay stubs.
- Proof of employment.
- Bank statements.
- Debt information.
- Residential history.
- Photo ID.
You will also need to have a source for the earnest money, which is money held as a deposit in escrow once you make an offer to purchase a home. It demonstrates your commitment to the purchase and will be returned if the seller doesn’t accept your offer. If the offer is accepted, it will be deducted from the purchase price. The lender may also require proof of homeowner’s insurance for the property prior to approval.
Contact Steiner Homes Today
Steiner Homes has a wide range of offerings when it comes to ranch, master-on-the-main, and two-story home options in Northwest Indiana. Our homes are affordably elegant and available with three-, four-, and five-bedroom options. Keep Steiner Homes in mind when you’re ready to purchase your first home. We’d love to answer any questions you may have and give you a tour of our homes. Contact us today at 219-255-3363 or via our secure online contact form.