First-Time Buyers

January 17, 2024

3 Great Home Affordability Tools

3 Great Home Affordability Tools - United Home Loans

Looking to become a first-time homeowner or sell your current house and find your dream home? Sometimes the goal can feel far away from where your finances will get you. Or it can feel just out of reach if the market is trending a little bit over your budget. You may be very pleasantly surprised what wonders home affordability tools will do for you.

Types of Home Affordability

When interest rates and home prices are elevated at the same time it’s tempting to put off your home search until it gets to be the “right time.” But more often than not, it’s not about timing the market but rather finding the right affordability solution.

Before we dive into the home affordability tools, we’ll distinguish the two major financial obstacles to buying a home. First, upfront costs, which include the down payment and closing costs. Upfront costs require you to have enough money in the bank to approach home financing. Secondly, the monthly budget, which is affected by your interest rate and how much you can put down to reduce the principal balance. Your monthly budget is important for two reasons. One, it’s a matter of what you’re comfortable with and what will best support the lifestyle you want. And, two, your monthly payment needs to fit within your overall monthly debt payments as a sum that is a certain percentage of your income in order to qualify for a mortgage. Now that we understand the two obstacles, let’s talk about overcoming them.

Down Payment Assistance

One of the best home affordability tools you can use if you’re struggling with upfront costs is down payment assistance provided by the housing authority in your state. While these programs typically have an income limitation, they are often not restricted to first-time home buyers only, which makes them a great option for many.

Consider that if you are a first-time home buyer, the amount of money you spend on rent every month while trying to save your discretionary income to be put toward a down payment will move you farther and farther away from homeownership. Down payment assistance can be what allows you to stop renting and start building equity.

Lender Contributions

Select lenders will offer programs that contribute a credit to your closing costs. Closing costs are fees you pay to finalize a real estate transaction and include items related to the property itself and obtaining financing. United Home Loans offers H.O.M.E. to first-time home buyers to cover up to $5,000 in closing costs. (H.O.M.E. funds are released in limited intervals, so make sure you contact us to see if now is the time to apply).

Buydown the Interest Rate

While down payment assistance can be used as a method of decreasing your monthly payment by using additional funds to make a larger down payment (thereby lowering your principal amount), reducing your interest rate is a surefire way to cut the monthly budget. Your monthly mortgage payment is a fixed number based on the principal amount and interest rate and remains the same for the entire life of your loan. When applying for a loan, underwriters will want to make sure your payment is low enough that they can deem the home affordable to you.

So, how do you adjust the interest rate so that you fall into an affordable bracket? You can buy it down through the use of discount points. Points are a percentage of the loan amount paid at closing that will lower your interest rate. In some cases, you and your realtor can negotiate the cost of the points to be covered by the seller through a seller credit. Also, if you qualify for down payment assistance, some of that money can be used to cover points. It is important to note, however, that points are not the right financial tool in all scenarios, so make sure you speak with a mortgage banker before deciding to use them.

Personalized Affordability Advice

We’ve laid out what challenges home affordability tools help you overcome and three in particular that are the most common. Now, it’s time to talk to a mortgage banker to see which one(s) are right for your unique buying situation. Get pre-approved and start finding answers to all of your questions!

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