What's the Cheapest Way to Buy a House?

Living in Florida you know cheap houses are far and few between. But that doesn’t mean if being first-time buyers that you are automatically priced out of the housing market.

Many first-time home buyers can easily afford making mortgage payments. Lending standards are set up to where they look at your entire financial situation and make certain you have enough money leftover after making your mortgage payment and paying your bills.

Luckily, there are plenty of ways to lower your down payment and closing costs so you can get into a house without the barrier of initial costs. A zero-down-payment mortgage might sound too good to be true. But two types of loans offer precisely that:

1. VA loan

2. USDA loan

You’ll only get a VA loan if you’re an active-duty service member, veteran, or part of an associated group, like surviving spouses. These mortgage loans are backed by the Department of Veterans Affairs, and they’re meant to make homeownership more affordable for those with a service history.

VA loans do require an upfront funding fee. But this can be included in the loan amount so you don’t have to pay it in cash.If you do qualify, this is likely to be your cheapest way to buy a house. The benefits of a VA mortgage include no down payment required, limited closing costs, and no continuing mortgage insurance

USDA loans are another zero-down option offered by the U.S. Department of Agriculture. As the name implies, to get a USDA loan, you need to be buying in a designated “rural area” — but that includes 97% of the U.S. landmass.

You must also have a household income that’s low-to-average for the area where you’re buying. There are other rules, but if you clear those two hurdles, there’s a good chance you’ll qualify.

Home buyers with less-than-perfect credit should look into an FHA loan. If your score is 620 or better, you may well qualify with a down payment of only 3.5% of the purchase price. FHA does require borrowers to pay a mortgage insurance over the life of the loan (the price of purchasing with less than 20% down)

The good news is that FHA loan holders can remove the mortgage insurance by refinancing into a conventional loan in the future.

And the news is even better if your credit score is a bit higher. Many with a credit score as low as 640 qualify for a conventional loans and they offer down payments as low as 3%.

Many parents and grandparents take real joy from helping younger members of their families to buy homes with a cash gift toward their down payment. Lenders recognize that and nearly all are okay with it.

Closing costs can be expensive, often 3% to 5% of your loan amount. This may come as a surprise for first-time buyers who only saved and budgeted for a down payment.

If you’re having trouble coming up with cash for closing costs, there are a couple of creative ways you may be able to get them covered.

One way is to negotiate "Seller concessions" which means convincing the seller to pay some or most of the buyer’s closing costs. You pay a higher purchase price in exchange for some of it being credited back to you at closing to pay for your closing costs. This could increase your mortgage loan amount since the purchase price is higher.

There are also limits to concessions, usually around 3% on low-down-payment loans.

However, if money’s tight you may think that’s a price worth paying to become a homeowner. And, you may have an opportunity to refinance into a lower rate later on.

If you really want the cheapest way to buy a house, you should make sure your finances are in good shape before buying. Don’t let “perfect” be the enemy of “good.”

If you wait until everything is the best it can possibly be, you risk missing out on the benefits of homeownership over the years while you’re making improvements.

So, in the year or months leading up to your purchase, do your best to:

• Increase your credit score. Even a small improvement to your credit report can earn you a worthwhile reduction in your mortgage rate

• Reduce your existing debts. Paying down high-interest debt, like credit cards and personal loans, will have a positive impact on your debt-to-income ratio (DTI), a key measure of mortgage eligibility

• Resist opening new credit accounts or (counterintuitively) closing existing ones. This can have a negative impact on your score

• Boost your savings. A down payment that’s just a bit higher than the minimum could get you a lower rate. And lenders like to see those extra “cash reserves,” as they make you a more reliable homeowner

Do these and you should be set up for success or at least one step closer to the goal. Most importantly get in contact with a loan originator that can guide you.

Source: https://themortgagereports.com/74921/cheapest-way-to-buy-a-house