It’s natural to doubt whether or not you can do this. But you can do this, because you’ve got us! It’s our personal belief that everyone deserves to be a homeowner.

We created this comprehensive guide just for newbies like you. It will walk you through each step of the home buying journey, defining key terms along the way.

After Reading Our First-Time Home Buyer Guide:

• You will know what “interest rates” and “escrow” are
• You will understand how buying a home works
• You will finally feel confident enough to purchase your first home

Just how comprehensive is this guide? Very. That’s why we suggest reading a few sections each day. You can also download and print a PDF version to read at your own pace.

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Are You Ready to Buy a House?

Key Takeaways

• Determine if you are ready for the financial responsibility of owning a home
• Think honestly about if the home you can afford meets your needs

Before you dive headfirst into a 30-year mortgage, weigh the pros and cons of owning.

Will The House That I Can Afford Meet My Needs?

A mortgage isn’t something you should rush into. You need to consider all factors like,

• Can you afford to buy a home in your desired neighborhood?
• Are you able to purchase a home that’s big enough to accommodate your family?
• Will this move shorten your commute to work?
• Will your kids continue attending their desired school?

If you keep answering “no,” this might not be the time to buy. Renting may be the best decision for your lifestyle, at least for now. If you answer “yes,” however, now might be the time for you to make a move.

Can I Afford New Homeownership Costs?

Homeownership can have very different costs than renting. Instead of just cutting a check to your landlord each month, you’ll need to think about:

• Making repairs
• Paying for upkeep
• Paying taxes
• Covering insurance costs
• Covering all of the utility costs

However, there are financial advantages to having homeownership costs.

• Rent isn’t a controlled cost and can go up at any time. A fixed-rate mortgage, however, remains constant over the lifetime of the loan.
• Rent payments don’t bring you equity. A mortgage payment, however, brings you closer to owning a home giving you equity that you can borrow from in the future.

Am I Financially Stable Enough to Buy?

To set yourself up for success, you want to make sure you can financially handle the responsibilities of homeownership.

• Do you have a secure job?
• Will your income stay the same or increase over the coming months and years?
• Does your co-borrower, if you have one, have a secure job too?
• Will you still be able to cover large upcoming expenses after purchasing a home?

You can always wait and spend the next few years squirreling away money.

Will The Value of The Home Increase or Decrease Over Time?

In some cases, the value of the home you hope to buy may be projected to decrease.

There are lots of factors that can impact the value of your home – some of which are in your control:

• Location and neighborhood
• The current state of the housing market
• The state of the economy and current interest rates
• Prices of comparable homes (aka neighborhood comps)
• The size of your home
• The age and condition of your home
• What upgrades or updates you’ve made to the home

Together, these factors can impact your home value and ability to sell the home later.

As you can see in the chart below, provided by DQYDJ, the median home price in the U.S. has stayed relatively positive.

While there is no fail-proof method to predicting whether your dream home will appreciate in value, there are some things you can look for.

• Does the property have value by itself? Real estate value has a large impact on home value. Land appreciates in value more consistently than the buildings on it. That’s why waterfront properties, for example, tend to appreciate in value.
• Is the local housing market doing well? Even when home values are down at a national scale, some cities still offer home value gains, especially cities experiencing new growth and revitalization.
• Can you complete mild upgrades to the home? New construction homes tend to have all the bells and whistles, leaving very little to upgrade. This makes it difficult to find upgrades that will improve the home’s value.

Calculating What You Can Afford & Homeownership Expenses

Key Takeaways

• Home-related costs shouldn’t exceed 28% of your income
• Be aware of the expenses you’ll incur before, during, and after buying a house

Before you start falling in love with homes on the market, you need to determine just how much house you can afford.

Here’s how to calculate what you can afford:

1. Determine what your household income is
2. Calculate all of your current monthly payments (e.g. credit cards, loans, food costs) and subtract the total from your income
3. Determine how much you will need to save each month for other needs and subtract that too

However much you have left over is a ballpark of what you can afford to pay each month on a mortgage.

You may also want to consider using the 28% rule. This common-sense adage states that home-related costs should never exceed 28% of your gross (pre-tax) income.

Homeownership Expenses

We won’t sugar-coat it: Buying a house can be costly. There are expenses every step of the way and they vary based on your location and the vendors you hire.

The key is to be aware of the costs before, during, and after you sign on the dotted line.

Expenses Before You Buy

Down Payment

These are the funds you’ll pay toward the purchase price of your home (unless you opt for a zero-down loan option). Depending on the lender, your down payment will range from 3 to 20% of the purchase price of the home.

Credit Report

You’ll pay a one-time fee for the lender to pull a copy of your credit report. This helps them make a decision about whether or not to lend to you. This may be a part of your closing cost fees. It ranges from $10 to $100.

Home Appraisal

A home appraisal is a requirement for nearly all loans. During a home appraisal, a professional provides a full inspection to determine the value of the home based on features, size, location, and the value of recently sold homes in the area. It costs between $450 and $750.

Home Inspection

You pay for the home inspection, and it’s your way of ensuring that the home is safe and secure. The home inspection can also tell you about potential upgrades and repairs you’ll need to make in the coming months and years. It costs between $200 and $1,000.

Pest Inspection

Your lender needs to ensure the home is safe from pests, especially termites. Having a professional pest inspector look at the home provides peace of mind. It costs around $100.

Survey

A survey helps you understand where the property boundaries are. This one-time fee is paid at the time of purchase and costs around $400.

Expenses During the Home Buying Process

Origination Fees

This is a one-time fee paid to cover the costs of processing the loan and any associated administrative costs. It generally costs 0.5 to 2% of the loan amount.

Title Insurance

Title insurance is sometimes included in closing costs. Otherwise, it costs around $500.

Closing Costs

Closing costs are generally between 2 and 6% of the home’s purchase price. Closing costs is a more general term that encompasses all of the fees you have to cover at closing, including:

• Appraisal fees
• Survey fees
• Title insurance
• Attorney fees
• Settlement fees

Expenses After You Buy

Moving Costs

Moving costs will depend on the size of your home as well as the distance you’re moving.

Escrow Fees

Escrow fees may be a part of your closing costs. This is an administrative fee for opening and managing an account to hold escrow in.

Repair Fees

The only way to know the cost of repair fees is to hire a professional to complete an inspection.

Property Taxes

Your local taxing authority may charge property tax. Check with your county or city office to learn how much to expect.

Private Mortgage Insurance

This is a monthly payment associated with your loan if you purchased a home with less than 20% down. It helps provide a level of security to the lender, should you default. PMI is normally 0.58 to 1.86% of the original loan amount.

Homeowners Insurance

This is an ongoing monthly payment that covers property and liability insurance. It is often required by your lender. The average homeowner insurance cost is $1,383 per year.

HOA Dues

If you buy property in an area with a homeowners association, you may be expected to pay regular dues. Most are monthly costs, and they vary considerably from one location to the next.

Utilities

These are monthly costs you’ll pay each month for expenses like electricity, gas, water, and sewer. Expect to pay between $100 and $500 a month.

Maintenance and Repairs

These are ongoing costs associated with the routine upkeep of your home. Experts suggest you set aside 1% of the total purchase price of your home for yearly maintenance. So, a $250,000 home would require that you save $2,500 annually.

Lawn Care

You may need to pay ongoing costs to maintain your lawn and exterior of the home. Estimate $100 or more per month.

Understanding Credit Scores

Key Takeaways

• A higher credit score can help you secure a larger loan and lower interest
• You don’t need a perfect credit score to buy a house
• You can (and should) work on improving your credit score
• You can get a free copy of your credit report online

It’s time to pay attention because credit scores are VERY important in the home buying process.

A credit score is a numerical representation of your creditworthiness. This figure is generated by credit bureaus who manage your payment history and debt usage.

Your mortgage lender evaluates your credit score to understand the risk associated with lending you money.

A higher credit score means you are more likely to secure a loan. It may also help you qualify for a lower interest rate.

What Credit Score Is Needed To Buy a Home?

The short answer? It depends.

While 786 is the median credit score for borrowers taking out home loans, you can get qualified for a mortgage with less-than-perfect credit.

Though specific credit requirements will depend on the lender you choose, here are some general guidelines:

Recommended Reading

How to Buy a Home With Bad Credit

How to Get a Copy of Your Credit Score

Start with a free copy of your credit report. That’s right, free. You have the legal right to one free copy each year from each of the three main credit bureaus, TransUnion, Equifax, and Experian.

You can request and review your free credit report by visiting AnnualCreditReport.com.

What Impacts a Credit Score?

Credit bureaus gather information on your credit usage and how you manage credit to develop this score. Some of the factors that impact it include:

• Making payments on time
• How much debt you have
• How close you are to maxing out your credit
• The types of debts you have (such as secured loans and unsecured loans)
• How long you’ve had a credit history
• How many loans you’ve applied for

How to Improve Your Credit Score

Improving your credit score is totally doable. However, it does take some time and effort.

If you want to work on your credit score, you must:

• Make payments on time every month. Auto payments can help.
• Keep the amount of debt you have as low as possible. Aim for under 30% of your available credit.
• Settle any judgments made against you.
• Use credit, but try to pay off balances in full.
• Avoid racking up multiple credit cards or loans at one time.

How Much Can You Borrow for a Home Loan: Pre-Qualification & Pre-Approval

Key Takeaways

• Pre-qualification isn’t a guarantee of the loan; it’s an estimate of what you will likely qualify for
• You need a pre-approval letter before putting in offers; this letter proves you have access to a loan to make an offer

You’ve calculated how much you can afford for a monthly mortgage. Now, how much can you borrow from a mortgage lender, bank, or credit union?

To answer this question, you’ll need to get pre-qualified.

What Is Pre-Qualification?

Though it sounds stressful, pre-qualification is quick and easy – in most cases, it takes less than a day.

During the pre-qualification process, you’ll provide your lender with some basic information like your income, monthly expenses, and credit score. They’ll use this information to offer a general idea of how much money you’re eligible to borrow.

Pre-qualification isn’t a guarantee of the loan. It simply gives you an idea of the loan amount you’ll likely qualify for.

You can use this information to narrow your home search to houses in your price range.

What Is Pre-Approval?

Step two is pre-approval.

During the pre-approval process, your lender will provide a more detailed evaluation of the mortgage for which you’ve qualified, including an estimate of the interest rate you’ll be charged. This process is more involved and time-consuming – often taking five to 10 days.

During the pre-approval process, your lender will review:

• The last two years of tax returns
• Paycheck stubs or proof of income
• Bank statements showing available savings
• Your personal identification
• Secondary identification, such as a utility bill or credit card
• Investment account statements to show proof of savings for down payments
• Credit card statements
• Loan statements for other accounts you own

All of this information allows the lender to know just how likely you are to make payments on time and how easily you can afford the loan.

Once you’re approved, your lender will draft a pre-approval letter. You definitely need a pre-approval letter before you start putting in offers on listings. This document shows sellers that you’re serious about buying the home and have sufficient moolah to back up your offer.

RECOMMENDED READING

What’s the Difference Between Pre-Qualified and Pre-Approved?

Financing Your First Home: Your Mortgage, Interest & Down Payment

Key Takeaways

• A mortgage is a loan used to buy a home; homeowners pay off their mortgage each month over the span of 10, 15, or 30 years
• Interest is the cost you pay your lender to borrow money
• While you don’t have to put down a large down payment, there are advantages

Getting approved for a mortgage can feel nerve-wracking. But there’s no need to worry.

When you partner with Dash Homes Loans, our Mortgage Coaches will walk you through each and every step of the financing process.

To give you a head start, we’ve included a little crash course on home financing below. You can also dive into our Guide to Home Financing.

What Is a Mortgage?

Let’s start with the basics.

A mortgage is a loan used to buy a home or another piece of real estate. As a borrower, you agree to pay back the principal plus interest over time.

Typically, homeowners make monthly mortgage payments for 10, 15, or 30 years. The longer the loan term is, the lower your monthly payment is. However, that also means you’ll be paying more in interest.

What Is Interest?

Interest is the cost of borrowing money and is expressed as an annual percentage rate (APR).

The interest rate associated with your loan will depend on many different factors like current market conditions, loan amount, and creditworthiness.

An interest rate that’s even slightly higher can mean paying thousands of extra dollars over the course of your loan. That’s why it’s so important to lock in a low rate.

Fixed vs. Adjustable Rates

Mortgages can either come with fixed or adjustable interest rates.

With a fixed-rate mortgage, the APR is static for the lifetime of the loan. That ensures monthly payments are always consistent.

Adjustable-rate loans may have a lower initial rate, but those rates can rise over time. Though unpredictable, adjustable-rate mortgages are perfect for homeowners who plan on paying off their loan early.

What Is a Down Payment?

A down payment is your initial payment toward the purchase price of the home.

How much money you put down on a home depends on your lender, loan type, and creditworthiness.

While USDA and VA loans can be secured with no money down, FHA loans typically require 3.5% down.

For borrowers with credit scores less than 580, a down payment of 10% is expected.

Comparatively, conventional loans require as little as 3% down. However, if you put less than 20% down, you’ll be expected to pay PMI.

(Forgot what PMI is already? We got you. PMI stands for private mortgage insurance that you pay if you purchase a home with less than 20% down.)

Why Put More Money Down?

Though no-money-down lending options may seem attractive, a larger down payment can be advantageous.

Benefits of putting more money down include:

• A lower monthly mortgage payment
• It can help you stand out in a seller’s market
• You may be able to bypass PMI
• You may be offered a lower interest rate

Down Payment Assistance Programs

But what if you don’t have the cash reserves for a down payment? No problem.

Many states offer down payment assistance programs. These programs make homeownership a reality for low-income buyers.

Down payment assistance comes in many forms, from grants to zero-interest loans.

At Dash, our Mortgage Coaches will make sure to explore any and all down payment assistance programs that you might qualify for.

Mortgage Lenders: How to Choose & Compare Offers

Key Takeaways

• When comparing mortgage lenders, narrow your list down to three and compare offers
• Take your time evaluating each lender; you want to work with someone you can trust

Mortgage lenders are banks, credit unions, and other financial institutions or organizations that provide access to loans.

Dash Home Loans is an example of a mortgage lender.

The lender you pick can mean the difference between getting stuck with unfavorable loan terms (think: high-interest rates) and finding a home loan that works for your budget.

Before You Settle on A Lender, Ask These Questions

How long do you expect the financing process to take?

The mortgage process itself – from application to closing – normally takes between 30 and 60 days. At Dash Home Loans, we have simplified our home lending process to minimize stress and wait times.

Who will be my primary contact during this process? How will we keep in touch?

Loan officers are notorious for offering subpar customer service. But at Dash Home Loans, we match every customer up with a Mortgage Coach who can offer five-star support.

Do you offer a closing guarantee?

If you don’t close as expected, you could be out thousands of dollars in inspections, due diligence money, and appraisals. To minimize this risk, some lenders (think: Dash Home Loans) offer a closing guarantee.

Comparing Mortgage Loan Offers

After learning more about different mortgage lenders and their home financing processes, narrow your list down to three. Then, compare offers made by each lender.

Here’s what you’ll want to evaluate:

• Interest Rate: Since a lower interest rate means a lower monthly payment, you’ll want to lock in the best APR possible.
• Fees: Ask about all the fees associated with mortgage financing – from application fees to underwriting costs.
• Down Payment: What are the down payment expectations? Do you have the cash reserves to meet these expectations?
• Mortgage Insurance: If you put less than 20% down, will you be expected to pay PMI?

Home Loans Available to First-Time Home Buyers

Key Takeaways

• First-time home buyers have access to grants or programs that can help reduce interest rates
• There are many loan options to choose from; a Dash Mortgage Coach can help you find the best one

First-time home buyers are, obviously, individuals who have never purchased a home before. However, you may also qualify as a first-time home buyer if you haven’t owned or co-owned a home in the past three years.

While being a first-time home buyer can be nerve-wracking, being new to the real estate game has two advantages:

1. You may be eligible for first-time home buyer grants. Specialized lenders offer these programs based on the state you’re located in. They can help reduce interest rates and help you borrow money for your down payment.
2. Lenders may offer more relaxed qualification requirements, like a lower down payment or credit score standard.

Types of Home Loans for First-Time Home Buyers

First-time home buyer loans are widely available in several forms. Here are a few types of mortgages to consider:

Conventional Loans

These loans have moderate interest rates and are most common for borrowers. Lenders typically require a credit score of 620 or higher and a down payment of at least 3%. However, PMI is needed for less than 20% down.

FHA Loans

Since these are backed by the federal government, they have lower credit score and down payment requirements. A first-time home buyer with a credit score of 580 can put down as little as 3.5%.

VA Loans

These zero-down loans are available to eligible individuals who have served in the U.S. Armed Forces. Since VA mortgages are backed by the federal government, they have lower credit score requirements and low- to mid-range interest rates.

USDA Loans

USDA loans are a no-money-down option for low-income borrowers looking to buy in rural areas. They have lower interest rates.

Reasons to Hire a Real Estate Agent for Your First Home Purchase

When you’re ready to start looking at properties, it’s time to hire a real estate agent. These are licensed, experienced professionals who have the sole goal of helping you find your dream home.

A real estate agent that works with home buyers is called a buyer’s agent. Your buyer’s agent works for you and only you, acting in your best interest. (Side note: Homeowners selling their homes also work with a realtor known as a listing agent.)

The best thing about working with a buyer’s agent? The home seller pays the real estate agent’s commission.

Other advantages of working with a real estate agent include:

• Your agent can help you with all aspects of paperwork, from understanding and completing documents to ensuring your legal rights are protected.
• Your agent negotiates for you. Once you find a home, they work with the seller’s agent to negotiate the best terms possible.
• Your agent knows what to look for in a home and can identify concerns before you make an offer.

What To Expect From a Buyer’s Agent

A buyer’s agent makes the house hunting process easier by:

• Finding Listings: Your agent will talk to you about your needs and budget, gathering insight into your desired features, space, and location. Then they get to work, finding and recommending listings.
• Showing Properties: Your agent schedules showings of available properties. They will also research available properties to uncover any problems or issues, giving you all the facts needed to make a decision.
• Making an Offer: Once you find your dream home, your agent will advise you on how to make a legally binding offer.
• Negotiating the Offer: Once the offer is in the hands of the seller, your agent works with the seller’s agent to negotiate the offer. The goal here is to protect your rights and secure a fair price.
• Provide Resources: Real estate agents can also connect you with other professionals like movers, attorneys, appraisers, and home inspectors.

What To Look For in a Real Estate Agent

Before committing to a real estate agent, ask friends and family to recommend prospective realtors. Then, look up their websites and online profiles, reading about their experience and expertise.

It’s a good idea to meet with at least three real estate agents before you decide who to work with.

Consider interviewing each agent, asking questions like:

• How long have you been an agent?
• How many homes do you help buyers purchase each year?
• How well do you know this area?
• Have you helped buyers find homes in my price range?
• How many clients do you have right now?
• How does your commission work?

Remember: Your real estate will be negotiating on your behalf, so you want to find someone you can trust.

Types of Home Sales

Key Takeaways

• There are different ways to sell a home, each offering a different buying experience

As you start looking at homes on the market, also consider how they are being sold. There are various strategies for home sellers to list their property.

However, how they are being sold can play a role in the type of experience you have.

Standard Home Sales

A standard sale is the most common option. A person lists their home on the real estate market and aims to get the highest price possible.

The homeowner handles the entire process, including negotiating the sale, often with the help of their real estate agent.

Sometimes, the home is sold on contingency. That means the home is being sold based on a certain outcome, such as the seller closing on the sale of their own home.

Bank Owned Sales

It is not uncommon for banks to list homes for sale. These are often foreclosed properties.

The bank owns the home and is selling it, sometimes at a fraction of the overall market price.

However, not all bank-owned homes are a good deal – you have to know the market to determine if the value is right.

Keep in mind that most bank-owned homes are sold “as is,” which means that the bank isn’t willing to do any renovation work.

Also, you may not be able to access the full history of the home, including any repairs that have been done.

Short Sale Sales

Short sales occur when a seller is hoping to get out from under a mortgage quickly. They ask the bank to accept an offer on the home for less than what they owe on the loan.

The bank may agree to this if they believe the property cannot be sold at a higher rate or that the homeowner may default on the loan. This could create a good deal for some home buyers. However, the process can be time-consuming.

What to Consider When Searching for Your First Home

Key Takeaways

• Carefully evaluate homes that have been on the market for a long time
• Don’t get hung up on wallpaper and carpets, those can be updated. Look at the bones and structure of the house

When searching for your first home, it helps to keep these three factors in the back of your mind.

1: Price

Once you are pre-approved for a loan, you know what you can afford to buy. But you don’t have to spend the full amount that you’ve been approved for. Some home buyers find lower-priced homes, using their remaining budget for renovations.

2: Size

Think about your current square footage needs, but also how those needs will change.

• Do you want to have children?
• Do you need space for an aging parent?
• Do you want to build a home gym or office?

3: Location

It’s not just about the city, but also the neighborhood. Work with your real estate agent to get a feel for the community as a whole to make sure you’d enjoy living there.

Learn about local restaurants, grocery stores, schools, parks, and greenways. You may even want to get out of your car to experience the area on foot. Your location can have a big impact on your quality of life.

What To Look for When Viewing a Property

Your agent has found the perfect home for you and you’re excited to see it.

Is it too good to be true?

The only way to know is to look at the bones of the house:

• Floors: Type, condition, and whether they need to be cleaned or replaced.
• Cracks: Look at the walls, ceiling, and foundation of the home, both inside and out.
• Leaks: Look for stains on the ceiling or floor. You may also look for evidence of moisture in the basement.
• Windows: The condition, style, and cleanliness are factors here. Make sure they close fully and aren’t drafty.
• Roof: Step away from the home to see all angles of the roof. Look for discoloration, missing shingles, and mold. Eventually, you’ll want to hire a professional to conduct an inspection.
• Trees: Are the trees and shrubs in good condition? Are they causing cracks in the foundation, sidewalks, or driveway?
• Electrical and Plumbing: Though you’ll have a formal inspection later, make sure the lights and faucets turn on. You may even flush the toilet.

Remember: Dated floral wallpaper or carpet in the bathrooms can be updated! Don’t let the home’s decor sway your final decision.

Your real estate agent should also check the home’s ownership history. If the property has been on and off the market numerous times, it may have some problems that aren’t fully understood or disclosed.

Putting in an Offer: Closing Costs, Home Inspection, Earnest & Insurance

Key Takeaways

• A low offer can work for homes that have been on the market for a while, but it likely won’t work for homes in a desirable market
• You may be able to negotiate closing costs, requesting that the seller cover them, but this is less likely in a competitive market
• Home inspections are very important; if the home inspector notices something wrong with the home, the buyer can negotiate and ask the seller to cover the repair costs. Or the buyer can walk away from the deal
• Earnest money is a “good faith” deposit that shows the buyer you’re all in; to avoid losing your earnest deposit, scan your contract for specific contingencies

You’ve found your dream home! (Go ahead, jump for joy. We won’t judge.) Now, you need to put an offer in.

The next question is this: Do you offer more or less than the asking price?

While you want to offer a competitive bid, you also don’t want to overpay for the home.

Lots of factors play into your offer amount. Luckily, your real estate agent can help you determine an appropriate offer amount.

A low offer might be right if:

• You’re operating in a buyer’s market where sellers are more likely to accept your offer.
• The home has been sitting on the market for a while.
• The listing price has already been reduced.

Offering the asking price might be right if:

• The listing price is fair and is similar to other comparable homes.
• The listing is in a desirable market and was recently put on the market.

A high offer might be right if:

• You’re operating in a seller’s market and competition is hot for homes in the area.
• There’s a lot of interest in the home.
• You must have the house because it’s perfect for you in every way.

In addition to price, there are other factors to consider as well. These include:

• Setting a timeline for a response from the seller
• Listing any contingencies you have
• Putting in stipulations for a home inspection

Work with your agent carefully on this, and be sure you are aware of all terms. Terms include when you’ll move out, what type of property (if any) is being left behind, and any details about closing costs.

Negotiating Closing Costs

When purchasing a home, you may be able to negotiate closing costs.

Closing costs are fees charged by the lender and other vendors. These fees typically range from 2 to 5% of the home’s sales price and include expenses like:

• Origination fees
• Fees for appraisals and surveys
• Title and homeowners insurance
• Attorney fees
• Property tax (typically six months of advance tax is paid at closing)

Who Pays Closing Costs?

You may be able to ask the seller to contribute to the closing costs. You could do this if you know your offer is solid or if the seller needs to sell lickety-split.

Another option is to ask the seller to lower the asking price so that you can pay the closing costs.

However, if you are in a competitive market, think again. The seller may disregard this request and move on to another buyer who’s willing to pay all closing costs. Work with your agent to determine if negotiating closing costs is appropriate.

Home Inspection

After you put in an offer, you’ll need to schedule a home inspection. This is a critical step.

During a home inspection, a licensed inspector will review the home, looking for obvious signs of damage or repairs.

If a major repair is detected, the home buyers can renegotiate their offer to cover the cost of the repair. Or, the home buyers can ask that the sellers fix the damage.

A home inspector will review the:

• Heating system
• Central air conditioning system
• Interior plumbing and electrical systems
• Roof and rain gutters
• Attic, including visible insulation
• Walls
• Ceilings
• Floors
• Windows and doors
• Foundation
• Basement
• Structural components

What If The Inspection Uncovers Something Wrong With the Home?

If the home inspector notices something wrong with a specific part of the home, they may recommend you call in a specialist. For example, you may need to hire a plumber to look at faulty pipes and evaluate repair costs.

What if an unexpected issue – a termite infestation, for example – is found during the inspection?

You, as the buyer, have the right to walk away from the deal.

Home Inspections and VA/FHA Loans

If you’re purchasing a home with a VA or FHA loan, you may face very stringent inspection standards.

These lenders want to ensure the home is in good condition, worth the price, and safe. If serious issues are found during the inspection, the seller will need to make repairs before closing.

Earnest Money

Earnest money, also known as a good faith deposit, is a down deposit that home buyers make to show intent to purchase.

When the buyer and seller enter a contract together, the home gets taken off the market. If the deal doesn’t go through, the seller must relist the property. This wastes valuable time.

Earnest money provides the seller with compensation, should a buyer back out of the deal through no fault of the seller.

If the deal closes as planned, the earnest money is applied to the down payment. If the buyer backs out of the deal, they may lose the money.

Earnest Money Contingencies

Within the purchase agreement, you’ll find contingencies that must be met to finalize the sale of the home.

Contingencies protect both the buyer and seller, so read them carefully to understand whether you lose your earnest money in various situations.

• Home Inspection Contingency: This allows the buyer to back out of a deal without losing earnest money if a home inspection reveals serious damage.
• Appraisal Contingency: If the home appraises for less than the listing price, the buyer can walk away from the deal without losing earnest money.
• Financing Contingency: If a buyer doesn’t get approved by a lender, a financing contingency can help them get their earnest money back.

Homeowners Insurance

Before you can sign the contract with your lender, you must have a homeowners policy. This policy must meet coverage requirements set by the lender.

It may be a good idea for your home insurance agent to visit the home to provide an inspection and make policy recommendations.

Fortunately, you can always increase your policy coverage at a later date.

Finalize Your Home Loan & Close on a House

Key Takeaways

• Your lender may re-pull your credit so DO NOT buy any big purchases while closing on a home; this can negatively impact your credit and stall your approval
• Once the closing documents are signed, the home is yours!

With the help of your mortgage lender, you can begin to finalize your home loan. During this step, loan underwriters will conduct another review of your information, ensuring all details are in order before they agree to the loan fully.

At this point, the lender may re-pull your credit, check that you’re still employed, or ask for additional documents. However, this is less common if you’ve already gone through the full pre-approval process.

Very important: This is NOT the time to make big purchases. Buying a new car or taking out a personal loan can affect your credit score, impacting whether or not your loan is finalized. Failing to make payments could also affect mortgage approval.

Closing on Your House

Once the underwriters agree to move your loan forward, the final step is to close on your home.

During closing, you’ll meet with legal representatives to sign documents making the home purchase official.

It’s a good idea to allow the closing agent to read through the entire mortgage document so that you fully understand the loan terms.

If you have any questions, ask for an explanation. It’s their goal to ensure you fully understand the terms you’re agreeing to.

You’ll see a breakdown of all costs during this process. This will include details about when your first payment is due. You’ll also be authorizing payment to the seller for the home at this time.

The closing process completes the home sale. That means you’re officially a homeowner. Congratulations!

First-Time Home Buyer FAQs

With a fixed-rate mortgage, you can expect your rate to stay the same for the lifetime of the loan. But with an adjustable-rate mortgage (ARM for short), your rate depends on market forces. It could swing up or it could swing down.

Which flavor is the best? Well, that’s like choosing between chocolate and vanilla – it just depends on personal taste. For the scoop on each financing option, keep reading. We’ve also included a list of questions to ask yourself before taking the plunge.

Contents

• What’s a Fixed-Rate Mortgage?
• Pros of a Fixed-Rate Mortgage
• Cons of a Fixed-Rate Mortgage
• What’s an Adjustable-Rate Mortgage?
• Pros of an Adjustable-Rate Mortgage
• Cons of an Adjustable-Rate Mortgage
• Which Loan Is Right for You?

What’s a Fixed-Rate Mortgage

With these home loans, you can expect to keep the same APR for the next 15 to 30 years, depending on your loan term.

Fixed-rate mortgages are perfect for home buyers who crave predictability. Rather than be at the whim of market conditions, you can expect to pay the same amount each month.

The downside? Much like an embarrassing tattoo, this home financing tool can lock you into a less-than-savory interest rate.

Types of Fixed-Rate Mortgages

Fixed-rate mortgages are typically defined by their loan terms. Though lenders can personalize the length of your loan, most fixed-rate mortgages are either 15-year or 30-year.

30-Year Fixed

This financing option affords homeowners the flexibility of repaying their debts over a 30-year period. Since the payments are spread out (amortized) over a longer period, you can expect lower monthly payments but a higher interest rate.

15-Year Fixed

A 15-year fixed mortgage cuts the repayment period in half, thereby doubling a homeowner’s monthly payments. Since a shorter loan term affords lower interest rates, it’s a solid choice for certain home buyers.

What’s an Adjustable-Rate Mortgage?

An adjustable-rate mortgage, or ARM for short, is a wildcard lending option. With this home financing tool, you start with a “teaser” APR that’s below the market rate. (Awesomesauce, right?) This rate will stick around for a set period – anywhere from one month to 10 years.

After the initial term, your teaser rate will adjust based on market forces. Since your rate will continually change throughout the lifetime of the loan, it can be difficult to forecast monthly expenses. You might also get stuck with an uber-high rate.

How Does an Adjustable-Rate Mortgage Work?

Fixed-rate mortgages are like the plain bagels of the home lending world — straightforward and universally tasty. Comparatively, ARMs pack a zestier punch that only appeals to select home buyers.

To determine if this mortgage option suits your palate here’s a little more insight into how they work:

• The interest rate on your ARM is calculated using a margin (a fixed interest rate determined by your lender) and an index (a variable interest rate that fluctuates with market conditions). Margin + index = your APR.
• Your lender will set “caps” on your interest rate. These caps set limits for how much your APR can fall or rise, thereby protecting both you and the lender.
• An ARM is expressed using two numbers. The first number refers to the duration of the teaser rate and the second to the duration of the variable rate. A 2/28 ARM, for instance, means you’ll receive a fixed rate for two years followed by floating rates for 28 years.

ARMs provide five flexible payment options and allow for future draws. Interest rates for ARMs can change monthly or annually.

Which Loan Is Right for You?

We get it – deciding between a fixed-rate mortgage and an ARM can be super stressful. To navigate this tough choice without pulling out your hair, ask yourself the questions below.

How Long Will I Stay in the Home?

Is this quaint bungalow your forever home or just a starter house? If it’s the latter, an ARM could be right for you. Since you’ll start with lower monthly payments, you can afford to stockpile cash for a larger home. You can also vacate the home before your interest adjusts.

However, if you hope to stay put for a decade or two, an ARM probably isn’t the right option.

How Frequently Will Lenders Adjust My Rate?

Though lenders typically adjust ARM rates annually, some adjust monthly. Can you tolerate that much inconsistency? Do you have the cash to cover recurring expenses just in case your rate skyrockets?

If stability is more your speed, a fixed-rate mortgage might be the better choice.

What Will Interest Rates Look Like in the Future?

Let’s face it: None of us have a crystal ball to predict the future. Nevertheless, economists can generally predict the movement of interest rates. With that being said, do your research. If interest rates have hit rock bottom, a fixed-rate mortgage could help you lock in a super low rate.

Of course, the opposite is true too. If you get a fixed-rate mortgage with a high rate, you’re stuck with it for the next 15 to 30 years or until you refinance.

Need a Home Lending Lifeboat?

Securing home financing can be really friggin’ stressful. Why? Because most loan officers don’t take the time to explain things like variable interest rates and interest rate caps. They just expect home buyers to wade into the icy waters of mortgage lending with no life jacket. (Which is super dangerous, by the way.)

At Dash, we do things differently. When you work with us, we’ll match you with a knowledgeable Mortgage Coach who will delve into the nitty-gritty of different financing options. They can even help you decide between a fixed-rate mortgage and an ARM, lending you a hand when you need it most.

To find the mortgage that suits your needs, contact us today!

However, loans like HomeReady and Home Possible make it possible for all kinds of buyers to secure mortgages—and the keys to their very own home. With lower down payments and looser credit score requirements, these loans are great options for homebuyers who fall outside those other stringent requirements. 

If you’re ready to begin your home-buying journey with a HomeReady or Home Possible loan, you’ll need a mortgage lender, but what you’ll want is an expert mortgage coach to help you navigate the whole process. At Dash, we work one-on-one with every client to help you choose the right loan, efficiently complete the process, and close as expected—guaranteed. 

What are Home Possible & HomeReady Loans?

Home Possible and HomeReady loans are government-sponsored enterprises (GSEs). GSEs are privately held agencies that Congress established to improve credit flow. 

GSEs don’t back their own loans. Instead, they buy mortgages from lenders, which are then held in their portfolios or sold via mortgage-backed securities. 

It sounds complicated, but the important takeaway for you as a homebuyer is this: GSEs make the national mortgage market more stable and affordable. Hence, Home Possible and HomeReady. 

Home Possible and HomeReady are mortgage programs designed for potential buyers with lower incomes and lower credit scores. They allow buyers to purchase a home without saving up a 20% down payment or raising their credit scores to 740 or above. 

So what’s the difference? 

Home Possible Loans

Home Possible is a mortgage program backed by the Federal Home Loan Mortgage Corporation—ie, Freddie Mac. It’s aimed at homebuyers with low-to-moderate income, and it requires a down payment of just 3% (that’s significantly more attainable than the 20% required by most conventional mortgages). 

The program is also geared toward buyers with low credit scores, usually 660 or above. However, those without a credit history—and therefore without a credit score—may also qualify for a Home Possible loan with a down payment of 5%. 

It’s important to note that you will have to pay private mortgage insurance (PMI) with a Home Possible loan until its balance reaches 80% or less of the home’s value. 

Who Is Home Possible For? 

Home Possible loans are best for buyers who: 

• Aren’t able to save up a large down payment
• Make 80% or less of the local area median income
• Have a credit score of 660 or higher
• Are first time buyers OR experienced homeowners

HomeReady Loans

HomeReady is GSE-backed a mortgage program. Like Home Possible, HomeReady is designed for homebuyers with lower incomes. With a minimum down payment of just 3%, it’s designed for those who can’t save up the 20% down payments required by conventional loans. 

The greatest differentiator between HomeReady and Home Possible loans is that HomeReady’s requirements for credit scores are even more flexible. Applicants just need a credit score of 620 or higher. 

As with Home Possible and even conventional loans, you will have to pay private mortgage insurance (PMI) with a Home Possible loan until its balance reaches 80% or less of the home’s value.

Who Is HomeReady For? 

HomeReady loans are best for buyers who: 

• Aren’t able to save up a large down payment
• Make 80% or less of the local area median income
• Have a credit score of 620 or higher
• Are first time buyers OR experienced homeowners

Benefits of HomeReady and Home Possible Loans

• Low down payment
• Lower credit score requirements
• PMI cancellation once loan balance reaches 80% or less of home value 
• Can accept monetary gifts to help with down payment 
• Can be used to refinance 
• Can be an experienced or new homeowner 
• Accessible to low-to-moderate income buyers

Requirements for HomeReady and Home Possible Loans in NC & SC

The requirements for HomeReady and Home Possible loans are very different from what you might find with conventional loans. 

Income Limitations

Rather than income requirements, both loans do have income limitations, which means homebuyers cannot make more than a certain amount annually in order to qualify. 

With both HomeReady and Home Possible loans, the buyer cannot make more than 80% of the area median income (AMI) for the area in which they’re buying. You can use the Fannie Mae AMI lookup tool to determine the AMI for your area. 

Down Payment Requirements

Buyers must make a down payment of at least 3% of the cost of the home. In addition to being significantly lower than conventional down payment requirements, these loan programs are also more flexible regarding the source of your down payment. It can come from your own savings, as well as a gift from a friend or family member or a grant. 

Homeownership Education Course

If you are a first-time buyer (or, in the case of Home Possible, if you do not have a credit score), you must complete a homeownership education course. 

If you choose the HomeReady program, you must take their Framework homeownership education program. With the Home Possible program, you’ll need to finish a CreditSmart course or another course offered through a housing finance agency or a counseling agency approved by HUD.

Pros & Cons of HomeReady and Home Possible Loans

As with any loan, there are advantages and disadvantages to both the HomeReady and Home Possible programs. Depending on your income, credit score, and other factors, the pros may outweigh the cons. 

Pros 

• Accessible to low-to-moderate income buyers
• Credit score requirements are lower
• Can use gifts or grants for down payment
• No first-time homeowner requirement
• Available for refinancing 

Cons 

• Not accessible to homebuyers with income higher than 80% AMI
• Requires private mortgage insurance 
• Must not own any other residences in the US
• Higher interest rates 

How to Apply for a HomeReady or Home Possible Loan

So you’re ready to say hello to home sweet home, and you think a HomeReady or Home Possible loan is the way to do it? Here’s what you can expect: 

Step 1: Consider Your Options

You should do plenty of research before you decide on any loan, including a HomeReady or Home Possible loan. While the low down payment and credit score requirements make these pretty sweet options, they do come with a higher interest rate than conventional loans. 

Depending on your circumstances, there may be another mortgage option that’s better for you. You can research your options on your own, or tap a Dash Mortgage Coach for help figuring out which loan is best for you. 

And if you do choose HomeReady or Home Possible, be sure you meet the requirements outlined above. 

Step 2: Recruit a Lender (Like Dash!) 

While HomeReady and Home Possible are GSEs, you can’t apply for the loans through GSEs (remember, they buy loans from other lenders). Instead, you’ll need to find an outside lender to service your HomeReady or Home Possible loan. 

Not all lenders service these loans—but we do. Our Mortgage Coaches can ensure you’re choosing the right loan for your situation, then help you process it efficiently and easily. 

Step 3: Apply for Your HomeReady or Home Possible Loan

Once you choose a lender, you’ll submit your application. You’ll also need to submit documents, like your taxes, that verify your income. 

Your lender will review these materials and decide whether or not you qualify. If you do, they’ll set your interest rate and your loan amount. Then it’s time to go house hunting! 

Work with Dash to Secure a HomeReady or Home Possible Loan

There are plenty of mortgage lenders, but none quite like Dash. That’s because we skip the middlemen and pair you with your own Mortgage Coach to help you every step of the way. Plus, we use technology to work super fast and offer the Dash Loan Closing Guarantee. 

Ready to get started? So are we. 

HomeReady and Home Possible FAQs

We know mortgages are complicated, even mortgage programs like HomeReady and Home Possible that are designed to make things easier. Consider Dash your homebuying guru—we’re here to answer all your questions, including these: 

What’s the difference between HomeReady and Home Possible?

HomeReady and Home Possible are very similar in terms of requirements, but HomeReady is a little more flexible. The program’s credit score requirement is lower (620).

Do you have to be a first-time home buyer for HomeReady or Home Possible?

No, you do not have to be a first-time homebuyer to qualify for a HomeReady or Home Possible loan. If you are a first-time homebuyer, you will need to complete a homeowner education course to qualify for either program. 

How much do I need to put down on a HomeReady or Home Possible mortgage?

Both HomeReady and Home Possible loans require a minimum down payments of 3% of the cost of the home. 

Are HomeReady and Home Possible available for all homes?

HomeReady and Home Possible loans are designed for single-family, single-unit homes. You can also use one of these loans on a two- to four-unit home as long as your primary residence will be in one of the units. 

Introduced in June 2021, RefiNow allows some homeowners with Fannie Mae-backed mortgages to refinance their loan for a lower interest rate. A lower interest rate means a lower monthly mortgage payment. A lower mortgage payment means happier homeowners. 

There are pretty strict requirements for RefiNow. Read on to learn more about the program and whether you qualify. 

What Is RefiNow? 

RefiNow is a new refinancing initiative from the Federal Housing Finance Agency (FHFA), and it is available through Fannie Mae. 

The program removes some of the traditional barriers that prevent homeowners from refinancing their homes. It also guarantees a lower rate and reduced monthly mortgage payment. 

RefiNow is available to qualifying low-income homeowners with Fannie Mae mortgages.

How Does RefiNow Differ From Traditional Mortgages? 

First, it’s important to understand why people refinance in the first place. Most homeowners refinance their mortgages in order to save money. 

Mortgage rates fluctuate constantly. If you bought your house when interest rates were high, you can save a significant amount over the life of your loan by refinancing when mortgage rates drop. 

With traditional refinance options, the homeowner must pay for the upfront costs, such as an appraisal and refinancing fees. Many low-income homeowners are unable to afford these costs and are therefore unable to refinance. 

In traditional scenarios, the benefits of refinancing are not guaranteed. Instead, they depend on the borrower’s unique situation and qualifications, like their credit score, debt-to-income ratio, and more. So while most homeowners consider refinancing in order to save money, that’s not guaranteed. 

RefiNow is a new option that removes these obstacles inherent to traditional refinancing. The program waives the upfront cost of refinancing, making it more accessible to more homeowners. The program also guarantees savings with a lower interest rate and a reduced monthly mortgage payment.  

Who Is RefiNow For? 

Millions of homeowners took advantage of low-interest rates and refinanced in 2020. But according to the FHFA, very few of those were low-income homeowners. 

RefiNow is intended to target exactly that market of low-income homeowners. Because of the high upfront cost of refinancing, many lower-income homeowners are not able to refinance. RefiNow will offer low-interest rates and other benefits to those with lower incomes and Fannie Mae-backed mortgages. 

RefiNow comes at the perfect time. For families whose incomes were reduced during the pandemic, refinancing with a guaranteed lower rate can help alleviate financial stress. A lower monthly payment could even help some homeowners avoid foreclosure. 

Not sure if you have a Fannie Mae mortgage? Check out Fannie Mae’s Loan Lookup Tool, which will determine whether or not you qualify. 

How Does RefiNow Help Homeowners? 

By removing some of the barriers to refinancing and guaranteeing lower rates, RefiNow is intended to make refinancing more accessible for certain communities of homeowners. Doing so also makes homeownership as a whole more sustainable. 

So how, exactly, does RefiNow make refinancing easier? 

Appraisal Reimbursement 

Many refinances require an appraisal, which is a financial hurdle many homeowners can’t overcome. If an appraisal was necessary for the refinance, Fannie Mae will provide a $500 credit to the lender when the loan is purchased. The lender must then pass the credit to the homeowner. 

By reimbursing the homeowner for the appraisal, Fannie Mae alleviates the upfront cost of refinancing. As this cost often prevents low-income homeowners from pursuing their refinance options, this $500 credit makes refinancing more accessible for many borrowers. 

Fees Waived

In most refinance mortgages below $300,000, Fannie Mae charges a 50 basis point up-front adverse market refinance fee. That means they charge a fee of 0.5% on a refinance loan. With RefiNow mortgages, Fannie Mae waives this fee, further decreasing the initial cost of refinancing. 

Required Reduction in Rate

RefiNow requires the homeowner’s interest rate be reduced by 50 basis points, or 0.5%, from their current loan rate. They also require that doing so results in a reduction in the homeowner’s monthly mortgage payment of at least $50.

By guaranteeing a lower mortgage rate and payment, RefiNow could save homeowners thousands of dollars every year. According to the Federal Housing Finance Agency, the program will save most borrowers $100 to $250 every month. That could mean savings of $1,200 to $3,000 every year for RefiNow borrowers. 

RefiNow Eligibility 

 We’d all like to qualify for this sweet refinance deal, but it’s only available to homeowners who meet the requirements set by the FHFA. Those requirements include: 

• You must have a Fannie Mae-backed mortgage. Remember, you can verify whether or not yours is a Fannie Mae loan with their Loan Lookup Tool. 
• Your home must be a one-unit, single-family home, and it must be your primary residence. 
• Your current income must be at or below 80% of the area median income (AMI). Note that this is your current income, not your income at the time of the original loan.   
• You must not have missed a mortgage payment in the past six months or more than one payment in the past year. 
• Your mortgage’s loan-to-value ratio can not be above 97%. 
• Your debt-to-income ratio must be 65% or less. 
• Your FICO credit score must be at least 620. 

How to Refinance with RefiNow 

As of June 5, 2021, RefiNow is available to qualifying homeowners. Fannie Mae doesn’t offer loans directly to lenders. Instead, it buys and guarantees mortgages via the secondary mortgage market. That applies to refinance loans, too. 

So in order to take advantage of the RefiNow program, you’ll need to refinance with a lender. Ask your lender (or a new lender) about your refinancing options, and mention that you think you may qualify for RefiNow. Your lender will verify the requirements and guide you through the process if you do qualify. 

Looking for a lender to help with your RefiNow refinance loan? We know a guy.

RefiNow and Dash Home Loans 

At Dash Home Loans, we know mortgage loans—including refinance loans—can suck. That’s why we built a business that makes getting a mortgage way easier. Naturally, the new RefiNow program is right up our alley. 

If you’re considering refinancing with RefiNow in NC or SC, one of our mortgage coaches can help. We’ll work with you one-on-one to determine if you qualify for RefiNow (or if there’s an even better option out there for you). 

Contact us today to get started. 

Refinancing your home loan can often reduce your monthly payment. However, your total finance charges may be greater over the life of your loan. Your Loan Officer will provide you with a comprehensive analysis.

With a little help from these programs and a participating mortgage lender like Dash, you might be able to afford your dream home sooner than you thought. Many of these programs are ideal for first-time homebuyers.

NC Home Advantage Mortgage

An NC Home Advantage Mortgage is a fixed-rate mortgage (conventional, FHA, VA, or USDA mortgages can all qualify). It is offered as an NCHFA program through participating mortgage lenders. The program is ideal for first-time buyers, but it’s also accessible to those who already own a home but are looking to “move up.”

The program also offers down payment assistance of up to five percent. (Conventional loans only qualify for up to three percent down payment assistance.) This assistance is offered as a no-interest second mortgage, but you don’t have to pay it off unless you move, refinance, or pay off your loan in the first 15 years. Otherwise, it’s forgiven 20 percent per year at the end of years 11 through 15.

NC Home Advantage Mortgage Qualifications

Want to apply for an NC Home Advantage Mortgage? Many North Carolina residents qualify if they meet the following requirements.

Eligible Applicants

• Must buy the home in North Carolina, and must occupy it as your primary residence (Be sure to move in within 60 days of closing!)
• Income can not exceed $99,000
• Credit score must be 640 or higher
• Must be a legal U.S. resident

Eligible Properties

• Single-family homes
• Townhouses
• Condominiums
• Duplexes (only FHA loans qualify)
• New manufactured homes (This option is only available to buyers with credit scores of 660 who use an FHA, VA, or USDA mortgage)

How to Apply for an NC Home Advantage Mortgage

You can learn more about the NC Home Advantage Mortgage on the NCHFA website. Because the loan is offered through participating NC mortgage lenders, you should contact a lender once you’re ready to get started. They will help you with the process.

NC 1st Home Advantage Down Payment for First Time Homebuyers

While the NC Home Advantage Mortgage does offer down payment assistance, you may qualify for additional assistance through the NC 1st Home Advantage Down Payment program. The requirements are more strict for this program, but qualified buyers may be able to access up to $8,000 in down payment assistance.

As with the other down payment assistance options, NC 1st Home Advantage Down Payment is a zero percent deferred second mortgage with complete forgiveness after its 15th year.

NC 1st Home Advantage Down Payment Qualifications

If you’re applying for an NC Home Advantage Mortgage, the NC 1st Home Advantage Down Payment program could help you secure a home. Before you ask your lender about the program, ask yourself if you meet the following requirements.

Eligible Applicants

• Must qualify for an NC Home Advantage Mortgage and meet all of its requirements:
• Must buy the home in North Carolina, and must occupy it as your primary residence (Be sure to move in within 60 days of closing!)
• Income can not exceed $99,000
• Credit score must be 640 or higher
• Must be a legal US resident
• Must be a first-time homebuyer (which means you have not owned a home for the last three years), military veteran, or purchasing a home in a targeted census tract

Eligible Properties

• Single-family homes
• Townhouses
• Condominiums
• New manufactured homes (must have a credit score of 660 or higher)

How to Apply for an NC 1st Home Advantage Down Payment

If you think you may qualify for an NC 1st Home Advantage Down Payment, your participating lender will help you apply as part of your NC Home Advantage Mortgage. You can learn more about the program on the NCHFA site.

NC Home Advantage Tax Credit

First-time buyers and military veterans may qualify for the NC Home Advantage Tax Credit. Qualified buyers can receive a tax credit of up to 30 percent of your mortgage interest rate (50 percent if your home is new construction), up to $2,000. This credit is available every year you live in your home.

The NC Home Advantage Tax Credit is a Mortgage Credit Certificate (MCC) offered through the NCHFA. You can apply for it when you apply for a mortgage. While it can be combined with an NC Home Advantage Mortgage, it can not be combined with an NC 1st Home Advantage Down Payment.

NC Home Advantage Tax Credit Qualifications

An NC Home Advantage Tax Credit can save you thousands of dollars over the course of your loan if you qualify. First, consider if you meet the following requirements.

Eligible Applicants

• Must be a first-time home buyer, military veteran, or purchasing a home in a targeted census tract
• Must meet the income and sales prices limits, which vary from county to county
• Must buy the home in North Carolina, and must occupy it as your primary residence (Be sure to move in within 60 days of closing!)
• Must be approved for the MCC before you purchase your home
• Loan must be approved by the NCHFA before you close
• Must be a legal US resident

Eligible Properties

Single-family homes

• Townhouses
• Condominiums
• New or used manufactured homes

How to Apply for an NC Home Advantage Tax Credit

Start by learning more about the credit program on the NCHFA website. When you begin the mortgage application process, ask your lender about also applying for the NC Home Advantage Tax Credit. They’ll help determine if you’re eligible and apply.

Community Partners Loan Pool

The Community Partners Loan Pool (CPLP) is another down payment assistance program. It can be combined with an NC Home Advantage Mortgage for assistance of up to 20 percent of the sale price (but can not exceed $30,000). It is also available to buyers using a USDA Section 502 loan for their mortgage, in which case they may receive up to 10 percent of the purchase price in assistance.

Like the NC 1st Home Advantage Down Payment, a CPLP loan is structured as a second, zero-interest mortgage. But the CPLP loan matches the term of the first mortgage and must be repaid, usually when the loan term ends or the home is sold.

The best part about the Community Partners Loan Pool? It can be combined with an NC 1st Home Advantage Down Payment or an NC Home Advantage Tax Credit.

Community Partners Loan Pool Qualifications

If you need additional assistance with your down payment, the CPLP could be a great option for you to get into the housing game. But the requirements for a Community Partner Loan Pool are a bit more strict.

Eligible Applicants

• Total household income can not exceed 80 percent of the Area Median Income in the county in which you’re buying your home
• You must offer proof of sufficient and stable income that will allow you to afford the home
• Credit score must be at least 640
• Housing ratio (how much of your monthly income will be dedicated to housing) must be between 25 and 32 percent
• Debt-to-income ratio can not exceed 43 percent
• Must finish an approved homebuyer education course, as well as two hours of housing counseling
• Must coordinate with a CPLP member to establish homeowner readiness plan before signing your contract

Eligible Properties

• New homes or homes in like-new condition (less than 10 years old)
• The sales price of the home can not exceed the limit for the county
• New homes must receive a Certificate of Occupancy
• Like-new homes must pass both a home inspection by a licensed NC inspector and a local housing code inspection
• If the home does not pass either inspection, necessary repairs must be made before the loan will be approved

How to Apply for the Community Partners Loan Pool

Unlike other home-buying assistance programs in North Carolina, you do not apply for the CPLP program through your lender. Instead, you’ll contact a local CPLP member, who will help determine if you and the home meet the requirements. (Find your local CPLP members here.) If they determine that you are eligible, they will submit an application to the NCHFA on your behalf. This process and the homebuyer education program and planning can take up to 60 days. Learn more about the CPLP program on the NCHFA website.

Self Help Loan Pool

The Self-Help Loan Pool (SHLP) program is offered in partnership with a SHLP member, usually an NC Habitat for Humanity affiliate. The program offers up to $35,000 in mortgage financing for a home built or rehabbed by an SHLP member (again, usually Habitat for Humanity).

The SHLP mortgage, combined with other agency funds, is offered as a zero percent, amortizing loan with a term that may range from 20 to 33 years. The homebuyer makes their mortgage payment directly to the SHLP member.

Self Help Loan Pool Qualifications

Of all of North Carolina’s homebuyer assistance programs, the SHLP program is the one with the strictest requirements. That is largely because it applies specifically to homes built or rehabbed by agencies like Habitat for Humanity. If you want to know if you qualify for the program, first consider the requirements below.

Eligible Applicants

• Must participate in the self-help housing program, like helping to build or rehab the home
• Household income must be at or below 80 percent of the Area Median Income
• Must complete an approved homebuyer education course and two hours of housing counseling before purchasing the home

Eligible Properties

• The SHLP program is only available for homes built or rehabbed by a Self Help Loan Pool member, like Habitat for Humanity
• Home price cannot exceed maximum sales price for the county

How to Apply for the Self Help Loan Pool

Like the other loan pool program, you must apply for a SHLP loan through a SHLP member. If you are interested in the program, begin by reaching out to your local SHLP member. (Find your local SHLP members here.) You can also find more information about the program on the NCHFA website.

Purchasing a North Carolina Home with Assistance

North Carolina offers a number of programs to help make your housing dreams come true, and your lender can help you navigate questions about which program is right for you and how to apply.

However, don’t limit your search for assistance to the state. There are also federal housing assistance programs you may qualify for based on your occupation, housing history, and other qualifications. Check out the US Department of Housing & Urban Development (HUD) to learn more about these other programs. Or, talk to a Dash mortgage coach. We’re here to help you find the best mortgage for you.

Opinions expressed are solely my own and do not express the views of my employer.

Whether you’re looking for a vacation home to call your own or an income-generating rental property, taking out a second home mortgage could fulfill your dreams. But before you start house-hunting, it’s important to understand the implications and potential repercussions of owning a second home, especially from a financial perspective.

That’s why we’ve outlined our top tips for buying a second home below, from what questions to consider before buying to the details of securing another loan.

Contents

• Determining Your Reason for Buying a Second Home
• Determining Financial Eligibility for a Second Home Mortgage
• Understanding Your Second Home Loan Mortgage Options
• Consider the Occupancy Rules
• Planning for a Second Mortgage

Why Buy? Determining Your Reason for Buying a Second Home

There are many reasons homeowners consider purchasing a home away from home: pleasure, business, and everything in between. To determine whether or not this is a financial feasibility for you and your family, it’s important to first identify your “why” for investing in another home.

Vacation Property

Many homeowners who are sick of the city life invest in a getaway located in a vacation destination like the beach or mountains. Others dream of a second home that’s closer to extended family. Depending on how frequently you plan to visit and whether or not you plan to use the property to generate income while you’re away, it might make more sense for you to rent an Airbnb or similar property instead.

Retirement Home

It’s always a financially sound decision to plan for retirement, and for some homeowners, that may mean investing in your retirement home while maintaining your existing residence. Doing so can give future retirees a leg up on learning about the community they’ll call home and meeting neighbors before transitioning to retirement full-time.

Rental Property

A second home might be a great investment opportunity if you decide to rent it out. Rental income can help cover the expenses of a second property and, with time, might even pay for itself. If the second home is in a popular vacation area or you’re planning to vacation there occasionally, you should consider short-term rentals.
If not, long-term leases to individuals or families are a way to generate passive income. Just keep in mind, the rental business isn’t easy: Renters can cause a lot of damage to a home, and tenants come and go, so there may be periods where you don’t receive any rent.

Flip & Sell

With the rise of HGTV “flippers,” you might be considering buying a second house to flip and resell. While it looks fun on tv, there’s a lot of work—and money spending!—that goes on behind the scenes. So only consider flipping a house if you have the resources, like construction industry contacts and plenty of cash, to do so.

Determining Financial Eligibility for a Second Home Mortgage

Just because you secured a mortgage for your first home, don’t assume you’re a shoo-in for a second mortgage. Second mortgages are risky for lenders because they know if things get dire, you’re going to prioritize paying the mortgage on your primary residence.

Stricter Mortgage Requirements for a Second Home

• Lenders usually enforce stricter requirements for a second mortgage, including:
• A higher down payment (at least 10 percent, but if it’s an investment property you’ll be renting to tenants, it’s likely to be closer to 20-30 percent)
• A higher mortgage interest rate
• A higher rate of homeowner’s insurance
• A higher credit score for a second mortgage, in most cases 620 or higher

It’s difficult for many homeowners to meet these stricter requirements of a second mortgage. Don’t forget you’ll have to cover closing costs, too.

Income Requirements for a Second Home

And then, of course, there’s the matter of whether or not you can even afford a second mortgage. The income requirements of a second home are hefty. You’ll need to be able to prove that both your mortgages, as well as the rest of your debt load like credit card payments, child support, and student loans, won’t exceed 36 to 43 percent of your gross income.

In addition to the cost of the mortgage itself, you’ll also want to consider the other expenses a second home will rack up: property taxes, insurance, maintenance, repairs, utilities, HOA fees, appliances and furniture (especially if you’re considering a short-term rental), etc. These costs add up, and you need to make sure you’ll be able to cover them comfortably before you think too seriously about a second home.

Understanding Your Second Home Loan Mortgage Options

When buying a home for your primary residence, you have a wide array of mortgage loans to consider. That’s not as true with a second home loan. Popular loans for first-time buyers, like FHA, VA, and USDA loans, are not available when you’re buying a second home. Instead, you’ll have to choose between the following loans:

Conventional Loans

Conventional loans are not backed by a government entity but are privately financed by a lender. For second home loans, you’ll usually need 10 percent down (or more) for a conventional loan.

Jumbo Loans

Jumbo loans are available to buyers whose home price exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). In 2021, that means loans that are higher than $548,250 in most neighborhoods and $822,375 in high-cost areas.

Consider the Occupancy Rules

Another aspect of these loans to consider when deciding which is best for your second home mortgage: occupancy rules. If you’re not planning to use a home as a primary residence, there are specific rules to follow for each mortgage type. With jumbo and other non-conforming loans, you can only rent out your second home for 14 days or less a year. If your loan is backed up by Freddie Mac or Fannie Mae loan, however, you’ll be able to rent out your home up to 180 days before it’s considered an investment property.

In addition to the rules set by your lender, you should also think about the financial repercussions of renting from a tax perspective. If you rent out your property for 15 days or more, you must report that income to the IRS. On the other hand, you might also be able to deduct rental expenses from your taxes. All that to say, look at the big picture of buying a second home, the loan you secure to do so, and what that will look like in practice.

Planning for a Second Mortgage

If you’ve done the math and believe you’re in a financial position to purchase a second home (or want to prepare for that position), congrats! But there’s still a lot of work to be done.

Run the Numbers: First of all, run the actual numbers to see what you might be able to afford. Using a mortgage calculator (or mortgage coach) can help you understand real costs.

Prepare Your Finances: Set a goal for your down payment and save towards that number (10 to 30 percent of the cost of the home). If your credit score isn’t at its best, work towards raising it by paying off any loans, asking lenders for credit increases, and paying everything on time.

Save an Emergency Fund: Owning a home is expensive, and buying a second home doubles those costs. Be sure to have a safety net for unexpected expenses like repairs and maintenance, as well as regular payments like HOA fees, property taxes, and homeowner’s insurance.

Decide on a Neighborhood: Once you’ve decided the purpose of your second home, it will help you determine the best neighborhood in which to buy. If it’s a vacation home or short-term rental, you’ll want to make sure it’s near the amenities you’re advertising (like a beach). For long-term rentals, it might be more important to consider things like school districts and privacy.

Contact a Lender: Reach out to a lender and get pre-approved or pre-qualified for a second mortgage. This will help you understand how much home you can afford, plus it will help lend credence to your offer when you begin trying to buy a home.

Second Home Sounding Board

If this seems like a lot of information to take in, that’s because it is. Buying a second home is complicated, but at Dash, we work to make it as uncomplicated as possible. Our mortgage coaches are here to guide you every step of the way, from deciding whether it’s the right time for you to invest in a second home to identifying which loan is right for you. Contact us for more tips for buying a second home.

Opinions expressed are solely my own and do not express the views of my employer.

As long as your credit score is above 500, there’s probably a loan option that will work for you. If your score is on the lower end, you’ll fare better with a government backed loan and a larger down payment. 

Regardless of your credit score, you’ll also need to be able to prove to the lender that you have a reliable income and have been paying your bills on time for at least a year or two. 

Let’s take a look at the types of home loans available to those with low credit scores, as well as what the home loan process might entail.

Contents

• What is Considered Bad Credit
• Types of Loans for Low Credit
• Other Factors Lenders Will Consider if You Have Bad Credit 
• What to Expect If You Have Bad Credit
• How to Improve Your Credit Score

What is Considered Bad Credit? 

There’s no hard and fast definition of “bad credit.” Instead, the phrase refers to a low-ish credit score, usually below 670. Experian, one of the three credit bureaus, defines scores of 300–579 as poor and scores of 580–669 as fair. If your credit score is above 500, your mortgage lender will probably work with you to find the right loan. If your score is below 500, it’s likely that you’ll need to work on raising your credit score before applying for a mortgage. 

Types of Loans for Low Credit 

Credit Score 500–579: FHA Loan 

FHA loans, which are backed by the Federal Housing Administration, are a great option for first-time homebuyers, especially those with a low credit score. If your score falls within this range, you’ll need to contribute a hefty down payment of at least 10 percent. Because the government is investing in you as a riskier mortgage client, there will be additional requirements. For example, you’ll need to pay off any other collections and judgments that are outstanding, and the home will have to be your primary residence. 

Credit Score 580-619: FHA or VA Loan 

Once your score gets closer to 600, your loan options will widen and the requirements won’t be so strict. With a credit score in this range, you can also apply for an FHA loan with a smaller down payment, in some cases as low as 3.5 percent. 

If you’re a veteran or active-duty service member, you should definitely consider a VA loan. These loans, which are backed by the Department of Veterans Affairs, require no down payment. Most lenders will require a credit score in the low 600s for a VA loan; Dash requires a 580 credit score. 

Credit Score 620–699: Conventional Loan or FHA Loan

If your credit score is in this range, you may qualify for an FHA or Conventional loan with a lower or no down payment. An FHA loan will likely be the most attractive (from a cost perspective) if your score is near the lower end of the 620-699 range. As your score gets closer to 700, a Conventional loan will be more attractive (from a cost perspective). Conventional loans typically require down payments of at least 5 percent.  

Additionally, if you’re looking to buy a home in a rural area with this kind of credit score, you might qualify for a USDA loan. These loans are backed by the U.S. Department of Agriculture and don’t require a down payment. 

Other Factors Lenders Will Consider if You Have Bad Credit 

While you may qualify for the loans above with the credit scores described, there are other factors that may affect your lender’s decision, for better or for worse. Other factors lenders will consider include: 

How Much You Have Available for a Down Payment

The larger down payment you have, the better. That’s because your low credit score will probably impact the amount of your mortgage loan (you’ll qualify for less), and a larger down payment can help make up the difference if you’re considering a more expensive house. 

How Much Debt You Have and How Much Credit You’re Using

Consider your debt like a pie chart: The more of that chart that’s filled with debt pie, the less space there is for new debt pie—like your mortgage. So the less debt you have and the less credit you’re using, the more loan you’ll qualify for. 

How Much Income You Have Coming In

Even if your credit score was great, this would still be an important factor. Your lender wants to ensure you have enough money coming in every month to pay your mortgage.

If You Have Any Debt in Collections 

Collections show up on your credit report and indicate to lenders that you have an outstanding, overdue debt which you haven’t tried to pay. That’s a signal of an unreliable lendee, and the lender will be less likely to lend you more money. 

What to Expect If You Have Bad Credit

While you might be able to qualify for a loan, there will be some cons to moving forward with a mortgage with a low credit score which you should know about. 

Be Prepared for a Larger Down Payment 

Most of the loans you’ll qualify for with a low credit score do require a larger down payment. In addition to helping you make up the difference on a small mortgage, a larger down payment will probably simply help you to qualify for a better loan. It shows the lender that you’re serious and capable of saving money. Plus, if you can put down 20 percent or more, you’ll avoid PMI, or private mortgage insurance. PMI is designed to outweigh the risk the lender takes on in offering you a mortgage, but with enough money down, you basically eliminate that risk. 

Be Prepared for Higher Interest Rates

When lenders agree to offer a mortgage to someone with a low credit score, they recognize they’re taking on a risk. To make up for that risk, they’ll usually charge a higher interest rate, up to 5 percent instead of 3 percent. It might not sound like a lot, but over the course of a normal mortgage term—anywhere from 15 to 30 years—that extra interest can add up to thousands of dollars.  

How to Improve Your Credit Score

While there are ways to navigate the pothole of a low credit score, the best option is to raise your credit score (and, if your score is below 500, it’s probably your only option). If raising your credit score feels intimidating, it shouldn’t. There are steps you can take to immediately raise your score, as well as others that can make a big difference over time. 

Check Your Credit Reports for Errors 

It can feel overwhelming to even consider the details of your credit report, but it’s worth checking. Look for anything that doesn’t seem accurate—that could be a payment that hasn’t been updated, an outstanding loan that you don’t know about, or an incorrect balance. If anything seems off, contact the credit bureau or creditor to dispute it. Your diligence could immediately remove the error and improve your score. 

Pay for Deletions 

If you notice anything that’s in collections, you should pay it immediately because these make you look like an irresponsible lendee. Once it’s paid, it will still show up on your credit report as paid, which is definitely a step in the right direction. However, you can also ask (and pay) to have it deleted from your credit report. Just make sure you have it in writing from your lender that they’ll delete any history of your collection. This, too, could instantly boost your score. 

Avoid Hard Credit Checks 

There are soft checks—like applying for insurance—as well as hard inquiries into your credit. Hard credit checks occur when you apply for a new account, and if you have a lot of these hard checks in a short period of time, it could negatively affect your credit score. That’s because asking for multiple lines of credit in a short period of time can look desperate to lenders, making you seem like a risky client. 

Increase Your Credit Availability

A good credit score is determined, in part, by the amount of credit you’re using. If you have a credit card limit of $1,000, for example, and you’re using more than 30 percent of that limit (more than $300), it could negatively impact your credit score. The easiest way to increase your credit availability, of course, is to pay off more of your debt. However, another way is to increase the limits on your credit cards. All you have to do is call your lender and ask for a credit increase. Increasing your credit only requires a soft credit check, so it won’t impact your credit score. Your final option is to open new accounts, which will increase your credit availability but will require a hard credit inquiry. 

Be a Good Steward of Your Debt 

This is the long game for good credit. Increasing and maintaining your credit score requires that you make your payments on time, utilize 30 percent or less of your available credit, maintain your accounts over long periods of time, and never let loans go into collections. The best thing you can do to increase your credit score? Pay off your debt. It takes time, but your credit score will be a credit to your efforts! 

Bad Credit, Good Mortgage 

Whether you decide to hold off on buying a home until you improve your credit or move forward with a less-than-stellar credit score, you have options. There are loans available and designed to help people with imperfect credit histories purchase a home. If that sounds like you, we at Dash would love to talk through your options and help you decide if now is a good time to buy a home. 

Opinions expressed are solely my own and do not express the views of my employer.

However, once both parties agree to the terms, the buyer makes an earnest money deposit and a contract is signed. Once the pen is put to paper, both parties are accountable for the sale and can’t walk away—unless their contingencies aren’t met. Contingency clauses are conditions that need to be met in order for the contract to be binding, protecting both the buyer and seller from deals that go south.

Here, we’ll review the most common contingencies that benefit buyers and sellers so you know what to look out for in or add to a real estate contract. 

What Is a Contingency?

A contingency clause defines a condition or action that must be met or avoided before the real estate transaction can move forward. Contingency clauses are included in the sales contract and are official and binding once both the buyer and seller sign that contract. Contingencies can relate to everything from inspection and the home’s condition to financing. If all the contingencies are met, the contract is binding. But if the terms aren’t met, either party can bow out without negative consequences.

Most often contingency clauses are intended to protect the buyer and ensure they can step away from the sale—and get their earnest money back—if the sale doesn’t work out as expected. However, contingency clauses are also intended to protect the seller. If contingencies are met and the buyer walks away, the seller can actually sue for specific performance and the buyer will have to purchase the home.

Contingency Requirements

As a buyer (or even a seller), contingency clauses sound pretty foolproof, right? While contingencies can protect you, it’s worth noting that they should be employed sparingly. The more contingencies a potential buyer attaches to an offer, the less appealing it is to a seller

There are also some specific requirements for contingencies that both parties must follow. In order for contingencies to work, they should be…

Conditional: Contingency contracts are dependent on the completion of certain tasks or avoiding certain scenarios. So if the condition doesn’t happen, fulfilling it isn’t necessary.

Specific: Contingencies need to be specific and measurable so that they aren’t open to interpretation. Both parties need to agree on the specific aspects of the condition so that they can understand and agree when it has been completed. For example, a contingency can’t just say the property needs to be upgraded because that’s immeasurable. It can, however, state that the seller must repair the roof before closing.

Have Deadlines: In today’s market, real estate transactions are almost always time-sensitive, which is why it’s important to set a timeline for contingencies. This ensures that the closing process continues according to schedule and provides an end-date for obligations. It also holds both the buyer and seller accountable.

The Agreement Should Be Binding: Finally, buyers and sellers should both be sure to include their requested contingency clauses and outline them specifically in an official, written contract. This guarantees that conditions are agreed upon and met, plus it helps both parties know how to move forward if they’re not.

Common Contingencies

You can include all kinds of contingencies in your contract but, like we said, you should be really intentional with your contingencies in order to seal the deal. Some of the most common contingencies include:

Inspection Contingencies

When buying a home, an inspection provides the buyer with insight into the condition of the house. It includes an examination of its interior, exterior, and systems (like HVAC, plumbing, etcetera). Inspections also cover aspects of the home that aren’t immediately visible, like mold or termite damage. After the inspection is done, the buyer receives a report that outlines what the inspector found as well as suggestions for repairs.

Home inspection contingencies give the buyer the opportunity to have the house inspected and the ability to negotiate the purchase price or repairs based on what the inspection turns up. Depending on what the inspection reveals, the buyer could ask the seller to make renovations or lower the price; if the seller doesn’t agree—or if it just seems like too much work—the buyer can leave the negotiations scot-free.   

Financing Contingencies

Also known as “mortgage contingencies,” financing contingencies ensure the buyer has time to apply for and receive financing, (i.e. a mortgage loan). Many buyers assume that because they were pre-approved for a loan, it’s guaranteed, but it’s not—it’s only the beginning of the loan process.

While mortgage contingencies are intended to protect the buyer, allowing them to end the contract and reclaim their earnest money if they can’t secure financing, there are rules here to safeguard both parties. This contingency offers the buyer a specific number of days to receive financing from a bank, mortgage broker, or other lenders. If it doesn’t work out, the buyer has until that date to end the contract or request an extension (which has to be put in writing and signed by both parties). If the buyer doesn’t terminate the contract or extend the contingency, they’re legally obligated to purchase the property—regardless of whether or not they get a loan.

Appraisal Contingencies

Appraisals define the market value of a house. Appraisal contingencies are inherently tied to financial contingencies because a satisfactory appraisal is a condition most mortgage companies require before offering buyers a loan. The mortgage company will only loan the buyer the amount of the appraised market value. These contingencies protect the buyer, providing room for negotiation if the appraisal comes in well below the offered price.

These contingencies represent the importance of setting and minding deadlines in contingencies: The buyer must notify the seller of any issues with the appraisal by a predetermined date—or else the contingency is deemed satisfied, and they’re obligated to move forward with the offer price.

Title Contingencies

Sure, you’ve heard of car titles, but houses have titles too. These titles serve as a record of the house’s ownership and any liens or judgments that have been made against the property. A title company or the buyer’s attorney usually reviews the title of the home and checks for any issues so that the title can be transferred free and clear. Sometimes, however, those issues are too big to solve before closing, in which case, the title contingency protects the buyer from those obligations and allows them to leave the sale.

Home Sale & Kick-Out Contingencies

Home sale contingencies allow for the buyer to sell their current home before closing in order to finance their new house; if they can’t find a buyer in time, they can walk away from the contract with their earnest money. While it’s great for the buyer, these contingencies tend to leave sellers in a sticky situation, especially when they take their home off the market and the sale falls through. Therefore, these contingencies aren’t used very often as it might turn off the seller and push them to turn down a buyer’s offer.

That being said, the kick-out contingency is the seller’s safeguard against the negative consequences of a home sale contingency. While the seller agrees to the home sale, it’s with the condition that they can continue to market the house; if a new buyer makes an offer, the first buyer has a certain amount of time to remove the home sale contingency. If they don’t, the seller can squelch the contract and move forward with the new buyer.

Why Contingencies Matter

The stakes always feel high when you’re buying or selling a house, and it’s tempting to leave out contingencies to help move the sale along. But many buyers and even sellers have lived to learn the lesson of a lack of contingencies when they were left with major repairs or holes in their pockets. Contingencies are designed to hold both parties accountable and offer an escape hatch if you need it. It’s important to understand what contingencies are and which ones are common in order to incorporate them into your contract and avoid any of those negative consequences. 

Opinions expressed are solely my own and do not express the views of my employer.

Most home lenders require a down payment because it proves your financial strength and mitigates the risk that you won’t pay your loan. But saving up enough dough for a downpayment requires a lot of scrimping over several years. 

We get that it’s intimidating, but it doesn’t have to be—especially if you qualify for a zero-down mortgage.

Fast Facts About Zero-Down Mortgage 

• Zero-down mortgages don’t require a down payment at closing*
• Zero-down mortgages are government-backed loans
• There are two options for zero-down loans: VA loans and USDA loans. 
• You need a credit score of 580 to qualify for a VA loan and 620 to qualify for a USDA loan
• Zero-down mortgages have strict criteria for qualification, but there are also low money down options if you don’t qualify. 

What is a Zero-Down Mortgage?

When buying a new home, you can avoid a down payment with a zero-down mortgage, also known as a no-money-down home loan. 

These loans are insured by the government, meaning the government’s got your back and will foot the bill if you can no longer make your mortgage payments. With the government on your side, lenders are more willing to loan you the money to purchase your home. 

There are just two types of these government-backed loans that don’t require down payments: USDA loans and VA loans. 

VA Loans

VA loans are zero-down mortgage options designed for veterans and active-duty service members that are financed by the Department of Veterans Affairs. (Think of it as a symbolic “Thank you for your service” from the government.) You might qualify for one of these loans if you’re a veteran, active-duty service member or National Guard member, or the spouse of a deceased veteran. 

The criteria for qualifying for a VA loan are super-specific. You have to: 

• Have a credit score of at least 580
• Provide a certificate of eligibility (or even better, let Dash get it for you!) which proves that you have entitlement for zero-down
• Use the home as your primary residence

And you have to meet at least one of the following criteria: 

• Served 90 consecutive days of active service during wartime
• Served 181 consecutive days of active service during peacetime
• Served for over 6 years in the National Guard or Reserves
• Be the spouse of a service member who died in the line of duty or from a service-related disability

USDA Loans

Whereas VA loans are dependent on military service, USDA loans are all about location, location, location. 

USDA loans are designed to spur development in rural and suburban areas. Not only do these loans not require a down payment, but they also offer lower fees than most mortgages. 

There are actually two types of USDA loans: Single-Family Guarantee, which are offered by USDA-approved lenders (like us!); and Single-Family Housing Direct, which are offered through the rural development office. 

There are specific requirements for USDA loans regarding both yourself and your future home. You must meet all of the following criteria: 

• The combined gross income of your household (not just people on the loan) can’t exceed 115% of the median income of the county in which the house is located
• Your debt-to-income ratio (how much money you spend on debt versus how much money you make) must be at 45% or lower
• Your credit score must be at least 620
• Your home must be in a qualifying rural or suburban area (the USDA has a handy map to help you check if your home is in an eligible area)
• Your home has to be a single-family unit and you have to live in it as your primary residence
• Your home can’t be a working farm (sorry, homestead dreamers)

Pros & Cons of No-Down-Payment Loans

Pros

• As with all homeownership, you’ll be investing in the equity of your home, rather than paying rent
• You can buy your home sooner because you don’t have to save up for a hefty down payment, which can take years
• You don’t have to strip your savings account to make the down payment. (Trust us, you don’t want to start homeownership with an empty bank balance—surprise expenses are bound to pop up and you want to be prepared!)
• With a higher mortgage balance, you’ll have more deductible mortgage interest on your taxes
• Any extra money you make can go straight toward your mortgage or into an emergency savings account

Cons

• The requirements for both zero-down loan options are really strict and you may not qualify, and it can require a lot of legwork to prove you do qualify
• By beginning with a 100% balance on your loan, your monthly payment will be higher.
• Your dream home might be out of reach since you won’t qualify for as expensive of a home as you would with a down payment
• If buyers with large down payments put in an offer on your house, their offer is more likely to be accepted

What About Low Money Down Mortgages?

If you don’t qualify for a zero-down mortgage, don’t worry, owning your home is still within reach. There are a number of low money down mortgage options that are low-cost alternatives to zero-down loans.

FHA Loans

Federal Housing Administration loans—aka FHA loans—are for folks with low to moderate income; they’re designed to help level the playing field when it comes to buying houses and make them more accessible for everybody. 

FHA loans can require as little as 3.5% down with a credit score of at least 580.

A quick side note: The downside to FHA loans is that you’ll need to pay mortgage insurance the entire time you have the loan. Private mortgage insurance (PMI) protects your lender if you default on your loan. With conventional loans, you can cancel PMI once you hit 20% equity in your home, but with FHA loans, it’s forever. The workaround? You can refinance to a conventional loan once you build 20% equity, which eliminates the need for mortgage insurance. 

While FHA loans are more lenient than their zero-down counterparts, there are still criteria you’ll have to meet to qualify: 

• You must use the house as your primary residence
• The home has to meet livability standards
• You have to move in within 60 days of closing 
• A debt-to-income ratio of less than 43%
• You have to prove employment and steady income
• A credit score of at least 580

Conventional Loans with PMI

Remember what we said about private mortgage insurance (PMI)? While it’s not ideal, it can help you buy a house with little money down, even with a conventional loan. Even traditional lenders will finance loans for as little as 3% down if you provide PMI, and you can cancel PMI as soon as you have equity of 20% in your home. 

The criteria for conventional loans are pretty simple: 

• A credit score of at least 620
• A debt-to-income ratio below 43% (although it can be higher)
• A down payment of 3% or more

Home Possible Loans with Freddie Mac & HomeReady Loans with Fannie Mae

The Federal Home Loan Mortgage Corporation, better known as Freddie Mac, and the Federal National Mortgage Association (Fannie Mae) are public government-sponsored enterprises. (It’s complicated, but Freddie Mac and Fannie Mae basically pool mortgages and open them to investors on the open market.) Both of these entities offer low money down loans for people with low to median income. Bonus: They offer lower PMI rates, too. 

Criteria for Home Possible or HomeReady loans are achievable for a lot of people. You’ll need:

• A credit score of at least 620.
• You can’t own any other residences across the country (though you don’t have to be a first-time homeowner).
• You have to attend homeownership education courses.
• Your income has to be equal to or less than 80% of your county’s median income. (It’s worth not-ing that, unlike USDA loans, this only applies to the parties on the loan, not everyone in the household.) 

Frequently Asked Questions About Zero-Down Loans

Home Sweet Home is Within Reach

If you’ve held off on buying a home because the hurdle of saving for a down payment was just too stressful, think again. With so many options for zero or low-money-down loans, you can buy a home without breaking the bank, and Dash is here to help you do just that. 

When it comes to finding out if you qualify for one of these loans with Dash, you have nothing to lose: zero commitment, zero fees. If you move forward, we’ll partner you with one local mortgage coach to take you from pre-approval** to closing and make the whole home buying process a piece of cake. (We can celebrate your new home with a piece of cake, too.) 

And if you don’t qualify for either of these loans, there are still options for loans with low down payments, like conventional loans without PMI (more on that later), Home Possible Loans, and FHA loans. 

Contact us today to find the right loan option for you!

Mortgage loans are designed slightly differently from other types of loans. The value of the home backs the loan – that’s the easy part. It gets a little confusing navigating the types of loans, however: how they work and which one is best for your needs. But that’s what Dash Home Loans is here for. We’re your partner in this process, giving you the information you need that gives you the confidence to choose wisely. 

Are you ready to buy a home? Reach out to Dash Home Loans now. Let our Mortgage Consultants help you start the process. If you’re doing preliminary research, read on. Here’s what you need to know and what you need to do to get the best possible results.

Five Signs You’re Financially Ready to Buy a Home

We hear it all the time: Buying a home and building equity is the best way to accumulate wealth. It’s the American dream, right? We need to add an important caveat: In order for homeownership to create wealth, it needs to come at the right time in your life. Time your home purchase well to set yourself up for success. Here are five financial signs you may be ready to take the leap:

1. Credit score: The better your score, the lower your interest rate. You’ll need a FICO credit score of about 580 for an FHA loan, but if you get that past 620, your loan options improve. If your score is lower than you’d like, consider investing time in bringing that score up to bring your interest rate down. If you’re unsure, call us. Even with a less-than-ideal credit score, you may have better loan options than you expect.
2. Debt-to-income ratio: It’s the first rule of personal finance. Earn more than you spend. But lenders get specific about this for potential homebuyers: Your monthly bills plus your new mortgage payment should not equal more than 43% of your monthly income. If your percentage is higher, consider a less expensive home or paying down debt first.
3. Down payment: Ready for some good news? You don’t need a 20% down payment. According to the National Association of Realtors, first-time homebuyers made a median down payment of 13% in 2019. While a lower down payment may add mortgage insurance to your monthly payment, you may be able to get a conventional mortgage for as low as 3% down.
4. Out-of-pocket costs: The down payment isn’t the only upfront cost you’ll face, however. Consider appraisal fees and inspection costs, not to mention closing costs – which may be 2% to 5% of the home’s price. Also, remember that right after you buy a home, you begin maintaining it. A trip to a hardware store for a lawn mower and tools is probably in your imminent future.
5. Steady salary history: Another myth that lingers in mortgage lore is that it’s impossible to get a mortgage if you’ve started a job within the past two years. While lenders do want to see a stable employment history, many will take a more holistic view and consider the stability of your earnings, as well as your credit score and debt ratio. 

Don’t Count Yourself Out – Ask Us

Is your credit score not as high as you’d like? Is your down payment too small? Don’t assume you’re not ready to buy a home. Call us and we’ll take a holistic view of your financial readiness and give you a realistic assessment. We don’t want you to hold yourself back unnecessarily. We have loan types for all kinds of buyers, and we pride ourselves on matching the right buyer with the best loan for them – even if they have a low down payment or borderline credit score. Learn your options from the professionals to make your savviest decision.

Should I Rent or Buy?

You can probably guess how we’ll answer: Buy, buy, buy. Not necessarily! There are good reasons to choose renting over buying. Do you expect to move or make a big relationship change within the next couple years? Rent. Do you value flexibility over all else? Rent. Are you struggling to establish savings? Renting may be better. When you buy, you no longer have a landlord to fix leaky pipes or a broken air conditioner – you’ll need a fund for maintenance and home emergencies. 

If you’re at a stable point in your life – when you don’t foresee changes in your career or location – home ownership may be for you. If you value roots over flexibility, it may be time to buy. For the right person at the right life stage, purchasing a home may become the investment of a lifetime. 

What Comes First: The Mortgage Company or the House?

This answer is an easy one: Always start with a mortgage company. Always. When you have that pre-approval* letter in hand, real estate agents and sellers will know that you are a qualified, serious homebuyer. Often, you can’t even look at a home or make an offer without this letter. The pre-approval process will also help you understand your appropriate price range, which could save you a lot of time during the home-shopping process.

With DASH, we can help you with both. Not only can we get you pre-approved (and you do know about our $10,0000 closing guarantee, right?), we can also link you to a trusted realtor when you’re ready. You and the realtor will have all the information you need to shop confidently. 

Start with Research

You have options about the mortgage companies available to you. Learning about your lender is important – it sheds light onto their business practices and the types of service you can expect. Here are some key areas to focus on when comparing mortgage companies.

Recommended Reading

Pre-Qualified vs Pre-Approved: What’s the Difference?

Mortgage Companies: Should I Go Local or National?

While this does not define the quality of a company, it can make a difference in the type of experience you have. Both local and national mortgage companies are likely available to you. Local lenders are those you can visit in person to meet with and handle the transaction. National lenders may have local agents, but other times the transaction is handled online until the closing process, when you’ll meet with a title agent.

How to Find a Reliable Mortgage Company

Finding a reliable mortgage lender – one that you can connect with and trust to help you with the process – is crucial. There are a few places to look for this type of lender:

• Ask your real estate agent if they have recommendations. Many times, they will have strong relationships with existing lenders. You can ask questions about most area lenders, too. Real estate agents have gone through dozens and dozens of transactions with lenders, and they often know which are the most flexible to work with.
• Ask for recommendations from friends and family. If you know of someone who recently purchased or refinanced a home, ask about their experience with their lender. Most lenders have a variety of different lender agents, so you may want to get a specific person’s name and contact information if your friends had a positive experience.
• Learn about the agency online. Doing a search online will give you lots of information – and hopefully plenty of reviews – about available mortgage companies.

What to Look for in a Mortgage Company

Once you find a few contenders, take the time to reach out to them to inquire about the services they offer. Ask for a consultation. Then, take a closer look at these important factors:

• Are they good at communicating with you? Do they get back to you quickly and show up for appointments on time? Do they talk to you in easy-to-understand terms or are they only fluent in finance jargon?
• What type of education and training does the representative have? Are they skilled in this area?
• What is the process for obtaining a loan? At Dash Home Loans, we make it as easy as possible for you to secure a loan through a streamlined process. (Warning: Not all lenders do.)
• What are they offering to you? Do they have access to the loan programs you are interested in?
• How do their numbers stack up? How acceptable are their interest rates and monthly payments?

Know Who You Will Deal with During the Transaction

When you learn how to buy a house, one of the most confusing aspects could be this one. Not every person on the phone with you will be a lender who can offer you a loan. There are several people you could be working with, such as:

• Loan processors who take in your loan information
• Loan officers who present offers to you and provide you with insight into your options
• Loan officer assistants who handle the paperwork and tend to be the person you talk to about documentation
• Administrative assistants also handle documentation and the process
• Closer, a person who prepares the documents prior to closing

That’s a lot of people – and that means a lot of potential risks. At Dash Home Loans, we get rid of this confusion. Our Mortgage Coaches replace all of these individuals. You have just one person you have to talk to and discuss your needs with for a home.

Get Pre-Approved

Now that you have a lender, pre-approval comes next. You’ll usually do this about 30 days prior to the closing on the loan. We recommend working on this step quickly to ensure that you can start bidding on the home of your dreams.

How to Get Pre-Approved

To obtain pre-approval, you’ll need to submit information to the lender. Your online application is the first step. The goal is to provide accurate and complete information so that the lender can easily go through and verify it. Your lender is looking at your income, credit, employment verification, and other steps to know exactly what your credit qualifications are.

How Long Does Pre-Approval Take? 

This part is often the quick one. You can usually have a pre-approval letter within one to ten days of submitting your application.

Know the Details of Your Loan Offer

Once you submit this information, the lender will provide you with a detailed loan offer. This will outline what you can expect to pay to buy the home. It will include details about:

• The down payment, including how much you need to pay down
• The type of loan available to you (including FHA, conventional, VA, and other offers)
• Mortgage term, or the length of the loan (usually 15, 20, or 30 years)
• The interest rates and all fees, so that you understand what exactly you’ll pay to buy your home 
• Estimated closing costs, which are dependent on the closing terms with your lender
• Escrow fund requirements, which holds any funds you need to put down for good faith transactions, like the earnest money check 

The lender should make all of this information clear and easy to understand. Having questions at this stage is completely expected, so ask about anything that seems confusing. This is a big deal (and a lot of money!), and it’s important that you understand and are comfortable with the details.

When to Obtain a Pre-Approval Letter

Once you start to look for a home, you’ll want to have your pre-approval in place. You will find that many home sellers like to hear you’re pre-approved because it means the transaction will move ahead quickly. It can be a negotiating tool for you if other would-be buyers do not have pre-approval.

To prove this to them, you can provide them with a copy of a pre-approval letter. It is a simple document that states that the lender has verified your financials and is willing to lend to you once you find a home to buy.

What Does Pre-Approval Mean?

Pre-approval is not a guarantee of a loan. It means the lender has verified your information and has made a loan offer to you. They have provided information to you about the fees and costs to borrow from them (which you agree to). In addition to this, they also commit to lend to you, as long as none of the information you provide changes – and assuming the home meets their requirements.

Go Shopping and Make an Offer

It’s time for the fun part! Now it’s time to find homes that interest you. When you find one that you wish to buy, you can then make an offer. An offer is a legal contract you must stand behind, so make sure you’re serious about the purchase.

How Does Pre-Approval Fit into Your To-Do List?

Good news: It’s a good step toward buying your home. Bad news: There’s still a lot to do. (Sorry.) One of the most important first-time home buyer tips is this one: Always work with your lender hand-in-hand. When they ask for information, provide it in a timely manner. Stay in contact with them throughout the week to check off a few key things, including:

• Due diligence fees and timelines: These will include the research that the lender will do to ensure you are ready to buy.
• Earnest money deposits: These deposits – which are put into escrow to show the seller you are serious about making a purchase – are made once you place an offer on a home and the seller agrees to it.
• Home inspection: A good inspection will tell you and the lender that the home is in good condition. If the inspection brings up any unhappy surprises, you may want to walk away from the offer you’ve made.
• Home repairs: If you find concerns with the home, you can ask the seller for repairs to be made or for compensation to be added to the transaction so you can handle these repairs.
• Appraisal: It allows the lender to have a third party to inspect the home to determine the value of the home based on recent sales in the area. The value must be at least what you are borrowing to buy the home.
• Settlement date: This is when you agree to purchase the home, and the lender starts working on the closing documentation to move your transaction forward.

What is a Real Estate Attorney?

Once you have a home to buy, and you have worked through the details with your lender, the real estate closing process begins. You may work with a real estate attorney during this process, who will draw up the contracts, including purchase agreements, mortgage documents, and title agreements. Some states require that a real estate attorney be a part of a real estate transaction; other states allow buyers to handle this themselves. (A note of caution: Handling this portion of the sale yourself would require a lot of knowledge of real estate law.)

Your real estate agent can refer you to a real estate attorney who will help you in the closing process.

Why is Insurance Necessary Now?

Before you can close on the home’s sale, you will need to talk to your insurance agent. Your lender will require that you have a home insurance policy that is ready to go on the home. Insurance helps the lender know the home is protected, in case a covered incident, like a fire, should occur. Within your mortgage contract will be a requirement for you to maintain your insurance policy to at least the value of the loan. Insurance policies are good investments because they protect your investment.

Your mortgage lender may offer recommendations on a home insurance company if you do not have one. Shop around for a comfortable insurance rate and be sure you purchase coverage that reflects your needs.

Do I Need a Home Warranty?

Home warranties are an added benefit to buying a home with certain real estate agents. The seller may provide a home warranty to the home buyer at the time of the transaction. They often do this – at no cost to the buyer – as a way to encourage offers on the home. Warranties differ widely, however. That means it is very important for you to know what type of warranty you are getting and the terms of it.

If the seller does not offer one, and the real estate agent does not, you can purchase a home warranty separately. If you consider this option, be sure to review what you are buying and the cost to you. Often, these warranties will provide financial protection for you that covers larger systems in the home from costly repairs.

The Importance of a Good Partner in the Home Buying Process

As you can tell, a lot can go poorly without a good partner guiding you through the process. A home is a big investment – likely your biggest investment. Every step of the way, you want to ensure you have the very best team by your side to support you as you buy a home.

If you’re a first-time home buyer evaluating lenders, contact us to hear how our Mortgage Coaches can help you. Ask us about our $10,000 wager that your home will close as expected (warning: we don’t expect to pay up because we’re that confident in our process!). We’d love to tell you how we can guide you through the tricky parts toward the best one: Walking into your very own home.