Guide for the First-time Home Buyer in Arizona

If you are a first time home buyer Arizona, the overwhelming amount of decisions you will have to make can be dizzying. You need to understand the process from start to finish and make the right decisions all the way along or you could suffer some disastrous consequences. Follow this template and general advice for ensuring you jump into the shallow end of the pool, without drowning from mistakes in the deep end.

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Important Questions you need to ask yourself

Buying a home is one of life’s most major decisions. Many first time home buyers are ill prepared and are forced to exit their first home in search of greener pastures much before they are financially ready. In purchasing a home there are many considerations:

  • Will your career path change radically in the near future?
  • Are you single and want to get married?
  • Are you married and plan on having children?
  • What neighborhood do you want to live in?
  • Do you want a home near your work?

All these question’s answers will lay the ground work for both the size of home you will look for and in which area you will look. Too often people buy a house too small in a poor neighborhood, just to own a home, when renting for an extra year will let you buy a bigger home in a better area.

Work On Your Credit

You will need to get your financial house in order first. If your credit score is under 620, many lenders in today’s tight lending atmosphere may not even consider you for a mortgage. Start working on raising your credit score by making regular payments on credit lines or loans and review your credit history for any mistakes.

Pay Down Debt

Using an online mortgage calculator can help you ascertain the size of mortgage you can afford in relation to your income. Remember to keep your total costs of the mortgage less than 45% Loan-to-Value ratio as that is the maximum that lenders will offer for a mortgage. If you have other debt, tied up in credit cards, home equity lines of credit or loans, these will subtract from the total value of a mortgage you will be eligible for. It may be smart to pay off these debt instruments before applying for a mortgage.

BEST Loan programs and Down Payments available for first time home buyers

There are many things to consider, including the financing options available to you. As a first-time home buyer, it is crucial to explore the different financing options to find the one that suits your needs best.

1. VA Loan for Veterans and Active Duty

If you are a veteran or active-duty military personnel, a VA loan can be an excellent financing option for your first home. This type of loan is offered by lenders and guaranteed by the Department of Veterans Affairs.

One of the significant advantages of a VA loan is that it requires no down payment. This means that you can buy a home without having to save for a down payment. Additionally, VA loans typically have lower interest rates than other types of loans, which can save you money in the long run.

2. FHA Loan for Low Credit Scores

If your credit score is below 700, an FHA loan might be the best financing option for your first home. FHA loans are government-backed and are designed to help individuals with lower credit scores and income levels.

One of the most significant advantages of an FHA loan is that it only requires a 3.5% down payment. Additionally, FHA loans have more relaxed credit score requirements, making it easier for first-time home buyers to qualify.

The downside of FHA mortgages is that they require an upfront mortgage insurance premium as well as a monthly mortgage insurance premium which are typically higher mortgage insurance premiums than a conventional loan.

3. Conventional Mortgage for Higher Credit Scores

If your credit score is 700 or above, a conventional mortgage could be the ideal financing option for purchasing your first home. It's a common myth that many first-time homebuyers believe that conventional loans are not suitable for them. In reality, conventional loan programs offer some of the most favorable terms for first-time homebuyers.

Although conventional mortgages typically require a minimum down payment of 3%, the interest rates are highly competitive. Furthermore, conventional mortgages provide greater flexibility in terms of loan terms and repayment options.

Your down payment can be money that you have saved OR a gift that you have received from a relative or employer. The best first time Conventional home buyer program will require 3% down payment. The FHA mortgage will require 3.5% down payment.

Get a Preapproved Mortgage

Get a mortgage preapproval before you start looking to ensure you are not wasting your time on homes you could not afford. Other fees when buying a home include closing costs that can range from 1-8%, so shopping around between lenders can make a big difference.

Set Your Minimum Standards

Now that you have all your preparations in order, it is time to start house hunting. Too often first time home buyers are looking for a great looking home without examining the more important structural parts of a home. The major items that should be considered include the quality or state of: roof, windows, furnace, central air system, plumbing, electrical, non-leaking basement, kitchen and bathrooms. Remember that cosmetic changes like light fixtures, flooring, paint, landscaping, fences, decks, and trim can all be done by yourself or relatively inexpensively by contractors. Replacing major items like a roof or windows require a significant investment.

Hire an Agent, Look for a Home

This is the best part of all, where you get to actually look at your potential new home. Consider a home that meets your needs now and 5-10 years from now. Do not get stuck in a home that you will need to sell in less than 5 years, as you may not even recover your closing costs in the resale of the home.

As a first time home buyer Arizona, remember the most important decisions are: what can you afford? Where do you want to live? Which lender offers the best cost of the mortgage? What are the minimum must-haves you need to even consider a home? From these basic questions, you will get a home you will enjoy.