Buying Your First Home
You've dreamed of owning your own home and now you're finally ready to make the leap and buy your first home. It's an exciting time! Here are a few things to keep in mind to help you get ready to become a homeowner.
Fix your price range
You want to be careful about not becoming 'house poor.' Try to find a balance between stretching a little and stretching too much. It's your first home, so you may have to compromise on your dreams a bit to keep within your budget.
Get a Gift for the Down Payment
FHA requires a 3.5% down payment on a home purchase. This means that if the purchase price is $100,000, you would need to come up with $3,500 for the down payment. But great news, the down payment can be a gift, you do not need to contribute your own funds if you receiving a gift for the full 3.5% down payment as FHA allows any or all of the 3.5% down payment to be a gift. As a general rule, the person giving the gift can be “a relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship.” In addition, a fiancé or domestic partner can give a gift.
Look into borrowing against your 401K or IRA
Your employer may allow you to take a loan against your 401K balance for home purchases. The advantage of this type of loan is that, instead of paying the interest to a third party, you pay it back to yourself. Getting approved to take the loan is generally not very difficult and can take as little as a couple of hours to get your approval.
Also, if you withdraw money from your IRA for a down payment on your first home, the normal 10% penalty that those younger than 59½ pay for withdrawals from traditional IRAs doesn't apply. And at any age, you can withdraw up to $10,000 penalty-free from an IRA to buy a first home for yourself, your spouse, kids, grandchildren, or parents.
Start Saving
Unless you or your spouse is a Veteran, you'll need to have at least 3.5% down payment available. While it’s best to have the money saved before beginning your search, there are several other ways to get the money such as gifts from family members or borrowing from your 401K.
Clean up your credit history
Request copies of your credit report before starting your home search. Make sure your credit history on the reports is accurate and work to fix any problems that you find. A clean credit history puts you in a stronger position to get a mortgage and helps make you more attractive to sellers.
Get Pre-Approved
Work with a mortgage lender like CityWorth Mortgage to get pre-approved for your mortgage loan. The sellers of the home you buy will want to know that you've been pre-approved. Also this will give you a good idea of what your monthly payments will be plus any taxes or HOA fees. Be prepared to provide some financial information about yourself—along with a co-purchaser, such as a spouse or partner, if you'll have one. If you own your own business, you may have to provide several years' tax returns to verify your income.
Remember the Tax Savings
You may qualify for some tax deductions, especially if you take out a mortgage to buy your home. You can find details about what you can deduct at the IRS website. Keep in mind if you've previously just taken the standard deduction when filing your income tax form, itemizing your tax deductions can be an attractive option when you buy your first home.
Remember to keep your receipts from all the home improvements you make. You can add them to the price you paid for your home to determine its final purchase price, or its cost basis, for tax purposes. If you invest a substantial amount of money into upgrading, you could end up reducing the amount of taxable profit when you sell.
Get a Home Inspection
It's a good idea to make your purchase contingent on a home inspection. Hire a licensed home inspector to give your potential new home a thorough once-over. The cost of the inspection will more than pay for itself if it allows you to avoid costly and unexpected repairs or gives you the opportunity to walk away from the purchase.
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.