Smart Home Loan Advice For Young Couples

Purchasing a home is never easy. It is often a long, tedious process where one has to know what they are looking for, consider their budget, calculate how much they can spend and how much they can set aside for improvements and many, many other things.

However, this entire endeavor becomes much harder if you are a first-time buyer. Having no experience can often leave you feeling helpless, not to mention that there is a great chance you are still paying off your student loans which makes it harder to save up for a down payment.

Nonetheless, if you are a young couple looking for your first home, it’s good to know that you have plenty of options when it comes to financing and purchasing a place of your dreams. In this article, we will present you with all the types of loans you can apply for as well as some other crucial factors you should be aware of when searching for your first house as a couple.

Mortgage Advice for Young Couples

Know Your Credit Score

Before you start looking at your options, you should be aware of your credit score rating. Some lenders are open to giving a loan to people with a lower score but that usually means higher interest rates. The higher your score, the better your options of getting approved for a loan.

Now, in the States, there are several consumer credit reporting agencies, including Experian, Equifax, and TransUnion. You should know that you are entitled to a free credit report once a year from these agencies. If you utilize these free reports properly, you can see where you stand every four months. For example, requesting a report from Equifax in February, Experian in June and from TransUnion in October means that you will stay up-to-date with your score.

Even if you are not in the U.S., you can still get these reports. In the UK, you can turn to all three previously mentioned agencies as well as to Call Credit. Australia has three credit reporting bodies – Equifax, Experian, and D&B – which are also obliged to give you a free copy of your credit report. Look into your country’s credit bureau to find out more about this.

Being aware of your score is especially useful if you are trying to improve it. While that might take some time, yes – you can improve your rating. If you notice any mistakes on the report, it’s vital that you report and dispute them right away. Furthermore, try to implement good financial habits in the future, pay your bills on time, avoid closing your accounts etc.

What is a Home Loan?

A home loan is also known as a mortgage loan or, simply, mortgage. It is a secured type of loan which a borrower uses to purchase a home. Seeing as how a home is usually the biggest investment an individual makes during their lifetime, most of them turn to home loans.

Understanding how home loans work is very important and it’s good to familiarize yourself with the process, regardless of whether you are based in the U.S. or Australia. First of all, you should save enough for a deposit but even if you cannot, you still have a chance to purchase a property. Making a down payment just means that you will have to borrow (and return) a smaller sum of money. Also, keep in mind that the lender has the right to claim the property in case you cannot make the payments anymore because it serves as collateral.

Where to Apply?

Loan Advice for Young Couples

When it comes to lenders, you can turn to traditional sources like banks and credit unions. Moreover, you can also look for a lender online. However, many states and cities have developed programs and grants which help first-time buyers get the house that fits their needs. So, in case you are a first-time buyer, you should make the most of these.

How to Qualify?

A first-time buyer is someone who has never owned a home. If you are a part of the millennial generation, you are probably such an individual. On the other hand, even people who did own a home previously can get some assistance if they turn to these organizations. Look into various options to see whether you qualify. Moreover, these programs often benefit people with low or moderate income. This also means that you will not be able to purchase the most expensive property in the market. If you have plenty of assets and you earn a lot, chances are that you will not qualify.

Alternatively, if you have a good credit score, you might not even have to look into these options. Getting a regular mortgage might be the better option in case your FICO score is above 720, as then you will not have to worry about various restrictions of first-time loans.

FHA Home Loan Program

The Federal Housing Administration (FHA) provides first-time homebuyers with a lot of help, more than any other program. The requirements to qualify are more flexible than other traditional loans. The property you buy must be your primary residence; this loan cannot be used for investment purposes. You need to have steady employment and must provide the FHA with paycheck stubs, tax returns and bank statements W-2s.

A great thing about this loan is that if your FICO score is above 580, you can qualify for an FHA loan and need just 3.5% for the down payment. For example, if you decide to purchase a house worth $280,000, you will need less than $10,000 as your down payment. The FHA even lets your friends and family take care of the down payment as a gift. On the other hand, if your score is between 500 and 579, you’ll need 10% for the down payment.

However, you should be aware that there is a catch – mortgage insurance. You have to pay upfront and annual premiums. This insurance does not protect you – it protects the lender in case you fail to pay.

203(k) Rehab Loan

If you and your partner are up for a challenge, you can opt for a fixer-upper. The FHA offers you a chance to purchase and renovate a house with a single loan. These so-called rehab loans have similar requirements to a standard FHA loan, but they require a credit score of 640. You will have to put down at least 3.5% and the costs of the improvement must be over $5,000.

Good Neighbor Next Door

Mortgage Loan Options for Young Couples

The U.S. Department of Housing and Urban Development (HUD) sponsors a program called the Good Neighbor Next Door. It is not limited only to first-time homebuyers, but it is open only to some professions, including teachers, law enforcement officers, firefighters and medics. If they agree to live there for the next three years, they can get up to 50% off when purchasing a home. It requires a down payment of $100.

There is a list of available properties on HUD’s website. However, you should know that these properties are often located in places marked for revitalization. If you do not see yourself living in an urban decay or rural abandonment area, make sure you weigh your options before making this decision.

HUD Dollar Home Program

HUD sponsors another program – the Dollar Home Program. Foreclosed FHA homes which have not been sold after six months of being on the market are offered to local governments for $1.

The goal of the HUD is to address specific needs of the community and allow them to revitalize neighborhoods. These improved single-family homes are then sold to low-to-moderate income families of the community. The HUD website offers the opportunity to see whether there are any such properties in your community.

USDA Loan

USDA (the U.S. Department of Agriculture) also guarantees loans. These loans allow low-to-moderate income individuals to purchase a home in a rural area of the country. This might put you off if you do not want to live in a rural area or a small town; however, you should know that almost 97% of the country is USDA-eligible. That means that you do not have to take care of livestock and live on a farm.

With these loans, you can get 100% financing and there is no down payment required. Usually, for a streamlined loan, you need a score of 640 or higher. However, even if your score is not enough, providing some extra documentation can help you get approved.

Moreover, mortgage insurance here is a bit cheaper than for FHA loans, so keep that in mind as well.

VA Loans

The U.S. Department of Veteran Affairs offers great loans for many military members. Regardless of whether you are a veteran or still active, you should definitely look into this option. If either of you is eligible, these VA-backed loans come with lower interest rates and do not require down payment. Sometimes, a funding fee is required but it can be included in your loan costs.

A big bonus here is that there is no mortgage insurance or a minimum credit score. Moreover, if you are struggling with your mortgage payments, the VA might be able to renegotiate the terms with the lender to make it easier on you.

In case you or your partner were injured during your service and have a disability, you can apply for disability housing grants. It can help you find a home that is adapted for your disability or adapt a home to make it accessible.

Native American Direct Loan

Home Buying Advice for Newlyweds

The NADL or Native American Direct Loan is a loan program for Native American Veterans. This program allows Native Americans who qualify to purchase, construct or improve property on recognized trust land. There are no down payment or mortgage costs, which is a big plus.

Some of the conditions for this loan are a credit score of over 640 as well as steady income which must be able to cover the mortgage costs, costs of owning a house, other expenses and provide for your family.

Furthermore, the borrower must reside at the property and have a valid Certificate of Eligibility.

National Homebuyers Fund

NHF provides homebuyers with a down payment and/or closing cost assistance (DPA). NHF DPA offers up to 5% of the mortgage loan amount and comes in the form of a zero interest rate second mortgage (which is forgiven after three years) or a gift (just like the FHA loan).

Not having to pay back this loan is great in case you are dealing with other debt. You do not have to be a first-time buyer and the FICO score and income requirements are flexible.

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) which purchase properties from lenders on the secondary mortgage market. This way, they help first-time buyers achieve their goal of owning a home. How this works is that borrowers have to put down as little as 3% as down payment. This can also be a gift from family or friends. Minimum score needed for this is 620 and you will have to pay for mortgage insurance.

Other Useful Home Loan Advice

In case you decide against these loans or you do not qualify, you can always turn to those traditional and less traditional lenders we previously mentioned. However, when doing that, it’s important to keep in mind that you should not take the first offer you get. Contact several lenders and see what kinds of rates and conditions they offer.

Furthermore, before you decide to take this step altogether, consider whether you are truly prepared to deal with all costs of ownership. Mortgage payments will not be your only expense as you cannot neglect your utility bills and other costs of living.

If you and your partner are ready to take this step, make sure to do your research, look into every option you have and choose the one that fits you best. There are plenty of options out there and we’re sure you’ll make the right call.

Top Home Loan Advice For Young Couples

About Anita Clark Realtor

Anita Clark has written 602 posts on this blog.

Anita is a residential Real Estate Agent in Warner Robins Georgia, with Coldwell Banker SSK Realtors (478) 953-8595, aiding buyers and sellers with all their real estate questions on her Warner Robins blog.