Think You Can't Afford To Buy A House? Think Again!!!
Aug 5, 2020
Think You Can't Afford to Buy a House? Think Again
The idea of buying a house can be scary, especially if you are only familiar with the pre-2000s home buying standards. But, good news! There's a lot that has changed in the past several years to make home buying more accessible and affordable. If you're looking to purchase in Indiana, you may qualify for additional home buying programs that aren't available everywhere else.
While you may be perfectly content renting a home, condo, or apartment, there are many reasons why it might be beneficial for you to take the leap into home ownership.
The biggest reason? Home value is appreciating - and quickly! In almost every market in America, home supply is low and demand is high. This housing shortage has created an environment where home value is increasing at a quick rate. Many areas are seeing 5% or higher appreciation a year. If you bought today, you might see your home's value increase by 5% by next summer.
For example, if you pay $200,000 for a home today and live there for just 4 years, you may have an extra $40,000 of equity when you sell. That is like a savings account, but with a much higher return. If, in four years, you pay roughly 7-8% of that in costs to sell the house, you would still make over $25,000 in equity just for buying the home, versus renting a home and having zero return at the end.
Breaking Down Your Mortgage Payment
Before deciding to buy a home, it's important to know exactly what your monthly payment will go towards. A monthly mortgage payment consists of both principal and interest on all loans. On government insured loans or insured conventional loans, there is also mortgage insurance for those that put less than 20% of the home's price as a down payment. Most loans have an escrow account set up to pay 1/12 of the homeowners insurance in the payment and also 1/12 of the real estate taxes in the payment.
The Federal Housing Administration (FHA) insures mortgage loans to a multitude of lenders. These loans are called FHA loans, and there are specific criteria that individuals need to be able to meet in order to qualify for participation in this loan program. With an FHA loan, you can borrow up to 96.5% of the total home price, meaning that you are only required to put 3.5% of the home price in as a down payment, as long as you have a credit score over 580. If your credit score falls between 500 and 579, however, you can still qualify for an FHA loan if you pay a down payment of 10% of the home's purchase price.
The United States Department of Agriculture (USDA) has a number of loan programs that homebuyers can use if they fit the criteria. In Indiana, more USDA loans are available because of the rural nature of the state. The Single-Family Housing Guaranteed loans allow buyers to put 0% down, helping to make home buying more affordable to low- and moderate-income families. To qualify, the specific property you're interested in purchasing must be considered eligible by the USDA's discretion, and you must also meet income requirements. You can check a property's eligibility online.
Another type of loan offered by the USDA is the USDA Direct loan. Designed for low and very low-income families in rural areas, these loans typically have a 33-38 year repayment period. To qualify for a USDA Direct loan, the property and your income must be eligible, you must be without safe and sanitary housing, and you must be able to prove that you can repay debt, among other things. More information about the USDA Direct loan options is available online.
The Department of Veteran's Affairs (VA) loans are specifically designed for active duty military members, veterans, and eligible surviving spouses. What makes VA loans unique is that, although they are administered through private banks, the VA guarantees some of the loan, making lenders offer buyers more favorable conditions. VA loans typically allow buyers to make a 0% down payment, though buyers are welcome to put more money down.
Conventional lending programs are those that you might think of right off the bat when you consider owning a home. They can be offered through a bank, credit union, or mortgage broker. Some conventional lending programs allow buyers to put as little as 3%, 5%, or 10% down. When using a conventional lending program, you are not limited to the bank(s) that you currently belong to. You can shop around and find the best rate, and your Orizon realtor can help point you in the right direction.
If you have additional questions about affording a home, the different types of loans, or where to get started, reach out to an Orizon agent today!