Buying your first home can be exciting and scary all in one! We have some tips here for you about securing your first mortgage loan, as well as tips for your first homeowners insurance program. Finding a home to fall in love with is the easy part, and we bet you've got your eyes on that dream home. Your next step will be selecting a mortgage that works for you. Maybe you're a Military Veteran, Service Member or their family member and you want to take advantage of a VA Loan. That's great and highly recommended. You'll want to fill out our quick survey to get the process rolling and to be in touch with a loan officer to see if you qualify.
What if your aren't Active Duty Military, a Veteran or their family member and don't qualify for a VA Loan? That's ok, we have another option and we recommend what is called an FHA loan. Let's go through each detail of an FHA loan.
FHA Loans Open the Doors to Homeownership
Home loans insured by the Federal Housing Administration (FHA) can make it easier for you to qualify to purchase or refinance a home. This loan option offers flexible qualification guidelines to help people who may not qualify for a conventional mortgage.
FHA Loan Highlights
FHA loans are widely used by first-time homebuyers and people with low-to-moderate incomes since this government-insured mortgage features:
- Low down payments
- Flexible income and credit requirements
- Fixed- and adjustable-rate mortgages
- Loans for 1-4 unit properties and condos may be available
- Down payment funds can be a gift from a relative or employer*
- Home sellers can contribute up to 6% of the closing costs
*Subject to underwriting review and approval.
FHA Loan Programs
FHA's adjustable-rate mortgage (ARM) insures home purchases or refinances with rates that can change after the initial fixed-rate period. Depending on market fluctuations after this initial fixed-rate period, your monthly payments could change due to rates increasing or decreasing. An ARM could be the right choice for you if you plan on staying in your home for just a few years, you’re expecting a future pay increase, or the current interest rate on a fixed-rate mortgage is too high.
Fixed-rate mortgages protect you against rising rates since the interest rate remains the same for the entire term of the loan. With FHA loans, you can select a 30-, 20- or 15-year term. The main difference is the lower term options have higher monthly payments, which also means you are building home equity faster. Keep in mind you can use equity as a down payment for your next home or a future cash-out refinance. If you plan on staying in your home for a longer time frame, a fixed-rate mortgage could be the right solution for you.
If you currently have an FHA mortgage, we may be able to help you reduce your interest rate and lower your monthly mortgage payments with an FHA streamlined refinance. Plus, a streamlined refinance requires limited borrower credit documentation and underwriting for an even easier process. This may be the right solution if you want to convert your ARM to a fixed-rate loan.
Let's Talk Home Owners Insurance
Now that you’ve selected the mortgage on your first home and perhaps even purchased your first home, let’s talk about first time Home Owners Insurance! We've reached out to insurance expert Jeremy Oswald for some tips.
What do first-time homeowners need to know about buying homeowner's insurance?
Home insurance should be the easy part of buying a home. The main factors that drive the cost are credit, age of home, condition of home, claims history of the client and of the home, and location(i.e.- in a city near a fire hydrant/fire station vs a rural location with no hydrant or station nearby). Packaging your auto and home insurance will also give a nice discount to both the home and auto policies.
Should first-time homeowners compare policies?
Yes! Rate shopping is always a great idea! I recommend getting multiple quotes from different carriers when looking for home insurance. It is recommended to call an independent agent (usually referred to as a broker), as they can run multiple quotes for you, and save you the hassle of calling and giving out the same info ten different times to ten different people. When looking over the coverages offered, make sure the policies include extended replacement cost for the dwelling, and replacement cost for contents coverage, AKA personal property. Make sure you are being offered a deductible you are comfortable with. Most policies come with a deductible in the $1,000-$1,500 range, but I've also see them be as high as $5,000-$10,000. The deductible is the amount you would pay if a loss occurred.
What coverage holes should homeowners look for?
Most standard insurance policies don't cover earthquake, unless added as an additional rider for an additional premium. Also, flood insurance much be purchased separately if that coverage is desired(if the home is in a higher risk flood zone, flood coverage will likely be required by the lender). Most policies also have limits for certain items, mainly jewelry and guns. Sometimes those limits can be as low as $1,500-$2,500, so make sure you schedule your $10,000 wedding ring on the policy separately.
Is it better to switch insurers every now and then to possible lower cost or stick with the same one?
It never hurts to shop around, although as a general rule, I recommend sticking with a carrier instead of switching every year, unless the savings are substantial. Insurance carriers look at previous policy longevity when offering discounts on new policies, so if you're moving your policy every year, you are less likely to qualify for those better discounts. Additionally, a carrier is more likely to work with you / not cancel you if you've been with them for awhile when a claim arises.
If you read our blog and ended up buying your first home, be sure to take photos and tag us on Instagram at @VATheFairway and use #VATheFairway. We want to follow along your home buying journey!