When you hear the phrase “First Time Home Buyers”, the meaning seems obvious, right? Literally, it’s someone who is seeking to buy and own a home for the “first time” in their life. In the mortgage industry, the definition is actually “someone who has not owned a residential property within the last three years”. In other words, if you previously owned a residential property (primary, vacation, or investment) or were a co-signer/borrower on a residential property and did not live in it, and the property was sold a minimum of three years ago, you would be considered again as a First Time Home Buyer.
The implications of this are game-changing because there are a lot of benefits available to anyone in this group and we want to help you determine if you qualify. We’ll be describing some of those benefits shortly, but first, let’s define the demographics of the First Time Home Buyers.
Who are they?
Millennials and Gen Y-ers make up the majority of First Time Home Buyers. According to Statista.com,
- 82% of home buyers aged 22 to 30 were first time home buyers; compared to the next closest age group,
- Only 48% of home buyers aged 31 to 40 were first-timers.
What are they buying?
Millennials are living with their parents longer and deferring traditional choices like marriage and families. This enables them to save longer, position themselves to bypass the starter home, and go straight to larger dream homes or “forever” homes. This is according to a USA Today article which adds that millennials are purchasing more homes than any other generation, to the tune of about 36% of all home buyers.
Where are they buying?
A recent CNBC article points out that “four of the top 10 best markets for first-time buyers, as determined by realtor.com, are in the Midwest.” These are:
- Bloomington, Illinois
- Iowa City, Iowa
- Kalamazoo, Michigan
- Great Falls, Montana
Other top cities include Eau Claire, WI; Savannah, GA; Schenectady, NY; Taylorville, UT; and Harrisonburg, VA.
Why are they buying?
In the same USA Today article above, Millennials and Gen Y-ers are delaying the jump from the parent’s nest. With a career started and a decent savings account, they either don’t want to start off renting, or they are ready to start a family, both of which are incentivizing the move to homeownership.
Benefits Available to First Time Home Buyers
Eligible For FHA Loan Programs: As a First Time Home Buyer, you are eligible for FHA loan programs. These typically allow you to have a higher debt-to-income (DTI) ratio as compared to a conventional loan. With an FHA loan, you will be required to have mortgage insurance for the life of the loan to protect the lender. A conventional loan only requires mortgage insurance (lender’s protection) for any loan amount that is above the 80% loan-to-value (LTV) of the property.
Gift Funds from Direct Relatives: Family members are allowed to gift money towards the purchase of a home. This transfer of funds must be properly documented and there are specific rules about how to use these funds so make sure you do your homework.
Grants From Your City/County: Many cities/counties offer grants and special loan assistance programs. This assistance with down payments and/or closing costs can come in the form of grants, no-interest loans, and/or loans with deferred payments. Be sure to check for these programs in your area for the specific requirements to qualify. They will probably have a waiting list to receive one of these grants.
Helps Build/Enhance Credit Score: Having a mortgage in your name gives your credit scores a great boost. People without a mortgage typically only have a revolving line of credit (e.g., credit card) or an installment loan (e.g., car loan). Adding a mortgage demonstrates financial stability and diversity, geographical/community commitment, and overall strong creditworthiness.
Mortgage Credit Certificate: If your income is a little short of the amount the lender needs to qualify you for the loan, they may consider using a mortgage credit certificate. To obtain this certificate, you need to complete an online class that lasts approximately a few hours. This certificate then acts as a tax credit that allows you to add up to $2,000 towards your annual income, which may be enough to put you over the top with your qualifications.
Non-Occupant Co-Borrower: Having a co-signer on your mortgage application to help you qualify. If you presently do not qualify for a mortgage due to your debt-to-income (DTI) ratios you can have a non-occupant co-borrower help you qualify. This person will be included in the mortgage application with you. This means their income, debt, and assets will be used in the overall calculation of the DTI, their name will go on the ownership of the property AND they will also be responsible for the payment of the mortgage as much as you are but they will not be residing in the property.
Despite all the advantages, being a First Time Home Buyer can feel intimidating, overwhelming, and just plain scary. Not only is there a LOT of information to absorb and process–there are twice as many rules to follow and guidelines to do it right! That’s where Unlimited Mortgage Lending can help. With over 20 years of experience, we can assess your unique situation, formulate the best path to success, identify which programs would best fit you, and walk you through the process with confidence and peace of mind. Simply Stated: we’ll help you manage this often overwhelming process so you don’t feel alone. Start now by taking our prequalification quiz to determine your home-ownership eligibility. From there, we can craft a custom home-buying strategy for you with a step-by-step plan. Get started today!
Source: Unlimited Mortgage Lending, LLC
