Quick guide for first time home buyers
First time home buyers
If you’re buying a home, especially for first time home buyers, consider hiring a professional to guide you through the process. Ask your agent and friends for lender recommendations, and research the builder and community. Shop around for the best deal and the best service from different lenders. Do not skip the home inspection, even with new construction; a home inspector should spot any potential problems. If the home is not complete, don’t sign the contract until you’ve seen it in person.
Location plays a huge factor with home values and the desirability of a home. You’ll get more bang for your buck by prioritizing size and location over upgrades.
Who are first time home buyers?
Freddie Mac and the U.S. Department of Housing and Urban Development offer different definitions for what constitutes a first-time homebuyer. Homeowners who have been out of the housing market may qualify for assistance programs even if they’ve never owned a home before. Down payment assistance programs tend to have lower debt-to-income ratios than a typical lender. Families must be no more than 80 percent of the area median income as determined by family size and income. An acceptable credit score is another key factor in earning down payment assistance.
Financing a new construction home
Financing a new home is just as important as getting a mortgage to purchase a resale home. Key questions to ask yourself include: Are my credit reports up-to-date and accurate? What information will I need to gather to apply to finance my new home? Mortgage loans come in different shapes and sizes. Federal government-backed loans are most likely your best choice.
Experiment with different rates, down payment amounts and loan terms to see how your maximum mortgage amount varies. The VA has been increasing its insurance fees recently, which increases your monthly payments. New-home construction loans are a specialized niche in the lending industry. Your best bet is to shop among community banks that know the local marketplace. Some lenders have programs that link FHA-insured permanent loans with short-term construction loans.
The typical down payment is 20 percent to 25 percent. The prime short-term bank lending rate is 3 percent, the construction period loan might be set at 4.25 percent to 4.5 percent. The permanent 30-year or 15-year portion of the package generally will be near the going rate for regular mortgages. Most large- and medium-sized builders either have wholly-owned mortgage subsidiaries or affiliate relationships with outside mortgage companies. Bridge loans come with higher rates than regular mortgages, often at least 2 percentage points higher. Sometimes the entire financing package comes with sales incentives for the new house, such as upgrades and price breaks.
How long do new construction homes take to build?
The average time it takes to build a new home is based on several factors, including the type of home and the region in which it’s being built. Custom homes can take longer to complete than production homes, while manufactured homes typically can be completed in a few months. That means clearing trees, rocks and other items, rough grading and leveling for the foundation. Delays in getting proper approvals and permits can also cause delays. Depending on where the home will be, building times can be affected by region of the country.
The style of your home will also influence construction time; custom-built homes average around nine months, while production plans average near seven months. Choosing a standard floor plan will quicken the building process, because it eliminates any variations that the builder will need to work out.
Benefits of owning a home
If you’re a homeowner, you might be eligible for tax credits and deductions from Uncle Sam. Credits are like coupons — they subtract from the sum of taxes you’ll have to pay. Deductions take away from your adjusted gross income, potentially bumping you to a lower tax bracket and reducing your tax liability. The Tax Cuts and Jobs Act increased the standard deduction, meaning fewer Americans need to itemize their returns to receive the maximum amount of money back on their taxes. Homeowners with a mortgage of up to $750,000 can deduct the interest paid on their loan if they’re married and file jointly.
Single filers can write off up to $375,000. Tax reform changes mean you can now deduct up to $10,000 for state and local property taxes. The average American homeowner pays about $2,127a year in property taxes, but this can easily double, triple or quadruple depending on the state you live in. The IRS is rewarding homeowners who make energy-efficient upgrades a priority intheir homes with tax credits. If you can’t afford a 20 percent down payment on a home, you’ll need to buy private mortgage insurance.
You can claim a tax deduction on your PMI payments if you took out your mortgage after 2007. In some cases, you can deduct up to 10percent of the cost of energy-efficient skylights, insulation systems, central air conditioners, furnaces, and water heaters. Deductions are limited solely to self-employed workers. The guidelines are pretty stringent so it’s worth checking out carefully before adding this deduction. Americans selling their home get to keep all of the profits without paying taxes. The property must serve as your primary residence for at least two of the five years prior to selling it. This perk, along with the other deductions we’ve covered, could save you thousands of dollars.