Create a budget before buying a home

Many first time home buyers come to me with unrealistic expectations about the mortgage payment associated with a certain purchase price. For example, I had one person request a $700 payment for a $200,000 loan and I can work magic to get the payment down but Houdini couldn't get this done. I asked the buyer some more questions related to his finances and I was able to determine that he had too much debt and alas the reason for the super low payment request. I put my financial counseling cap on and worked out a solution which he was able to pay off a car with only a year left on it which created $500 per month cash flow as well as eliminating some expenses from his budget which gave us another $250 per month cash toward the mortgage payment. Now, he was able to afford $1,450 per month payment and I was able to customize a 30 year fixed zero down payment of $1,550 per moth which was still a little tight. I had one more rabbit to pull out of the hat. I explained to him that he could take less taxes out of his check because he will be getting some good tax benefits from mortgage interest and real estate tax deductions. He then said, "why would I give up my tax return which is one of the main reasons I want to buy a home?". I told him even if he doesn't get any more money back from Uncle Sam, he would still build wealth when his home goes up in value every year. For example, if his new home appreciates at 5% per year for 5 years, his home would be worth $255,000 or more..a $55,000 increase in his net worth. Remember, he will be putting zero down and paying no closing costs out his pocket. My point is that you must sit down, look at your income and expenses, and work out a budget for your new home and determine what cuts could be made and what could be the maximum payment you can afford. Then, you can find out which loan programs and payment options will fit your budget. Finally, be realistic about the price range of your first home and don't think you are going to get the Taj Mahal. You may have to buy a modest starter home at first but in a couple of years you can put down a large down payment and bump up to the home of your dreams.

Choosing the right first time home buyer program

Choosing the right loan program can be a daunting task for a first time home buyer but it real boils down to 3 factors: 1. How long do you intend to live in the home? 2. What payment can you afford? 3. What are your short-tem and long-term goals? If you intend to live in the home a long time then you may opt for a 30 year fixed rate mortgage and you want to stay away from an adjustable loan or ARM. You may want an ARM if you intend to stay in the home a shorter time period and you want to match the term with the length of time you expect to stay in the home. For example, if you will stay in home 5 years, then you would do a 5/1 arm which the rate is fixed for 5 years. Rates on ARMs are usually lower and the shorter the term of the ARM the lower the rate. One of the biggest concerns for a first time buyer is their monthly payment and everybody wants to buy a big home and keep their payment very low but you may not be able to do this with a 3o year fixed loan. If you want to stay in the home a long time and want a more stable program, then you may want to take a look at the buydown loan or interest only loan to lower your payment. The interest only loan sometimes gets a bad rap because people feel they will lose money if they don't make payment toward principal every month. But you have to remember, most of the benefits of owning a home comes from the increase in value and you don't pay that much down on principal in the first 5-10 years of a mortgage anyway. For example, if you purchase a home for $200,000 and it appreciates at a rate of 5% per year, your home value will go up $10,000+ every year but you will only knock down your principal a couple of thousand per year. If you do a zero down payment and the seller pays closing costs, I can't believe anybody can argue with making $10,000 a year on a zero investment! Sometimes, I have clients who have a fixed payment they can afford in their head such as $1,000 per month and I may be only able to get their payment down to $1,100 on a great program but they still balk and say "the payment is too high". You have to be a little flexible and if a $100 is going to make or break you then you can take a little less out of your paycheck to absorb the higher payment. Remember, you will get greater tax benefits by owning a home and it probably won't hurt you at all to take a little less taxes out of your check . Finally, I customize loan programs based on each buyer's unique short-term and long-term goals. For example, I may have a couple which one is still in school and one is working but they want to stop burning their money on rent payments and get into a home now. Let's assume they have excellent credit, no down payment, and the one in school will have a good job a year from now. I may suggest a Power5 Option ARM which has a super low interest rate of 2.375% (APR 8.01%) to get them into the home and I would refinance them a year later into a more traditional fixed rate type of loan depending upon how long they may stay in home. Also, I may give them a no closing cost option so they would not have to pay closing costs again. You see, there are thousands of loan programs with thousands of closing costs and points scenarios and you need to consult a trusted mortgage advisor who will help you determine what are your best strategies to manage the biggest debt you will ever have in your life.

Home Opportunities Program Great if you are a Teacher, Fireman, Police Officer, or Healthcare worker such as Nurse

If you are a teacher, fireman, police officer, or nurse you may want to check out the Home Opportunities first time home buyer program. You can have no credit history or credit score low as 600 and qualify for a great rate. Today's rate is 6.125% (APR 6.26%) with zero down payment. There are no income restrictions and the seller can pay 4% of the loan amount in closing costs. Also, you may be able use stated secondary income from a side job which is not reportable and will not be verified. For example, if you are a teacher and you moonlight as a tutor, you may be able to use this cash type of income to qualify for the program. Finally, I am offering $500 off closing costs and please ask me about the My Community Give-Back Program which $100 from every closed loan will go to the 503(c)(3) arm of your organization.

This first time home buyer loan program is available to public employees* which is defined as any of the following:

1. Teachers-a certified teacher or administrator at an accredited or state recognized private or public school.
2. Law Enforcement-Firefighters-employees of a law enforcement agency or fire department administered by an agency or subdivision of a state or local government. You can be a sworn law enforcement officer responsible for crime prevention and detection, law enforcement, criminal incarceration or a sworn member of a fire department involved in fire suppression or prevention, emergency medical response such as paramedic, hazardous materials response, management, or response to terrorism.
3. Certified Healthcare Workers-Employees of a certified, accredited health care facility, or a licensed health care worker who is a medical resident or fellow, a nurse, a nursing assistant, pharmacist, pharmacy technician, physician's assistant, medical technician, or therapist.

Please contact me at 847-516-5743 if you are unsure whether you qualify for the program.

*Definition of Public Employee applies to both public and private professions.