New Jersey Real EstateNew Jersey Real Estate MarketReal Estates Sales October 9, 2020

First-time Home Buyer? Don’t Get Hung Up by That 20% Down Payment

The New York metro real estate market has seen big shifts since the COVID-19 pandemic hit the area, with many city dwellers seeking out the suburbs to get away from crowded urban areas. They now want open space and great quality of life at a better cost of living when compared to NYC.

Another shift is the population making the move: in New Jersey, there are 1.8 million millennials (between ages 24 and 39) who make up 72% of today’s housing demand. The average age of these home buyers is 32.

This is also a group that’s paying off student loans, have been paying high rental rates, perhaps have started a family or paid for a wedding . . . and therefore, they don’t have the 20% down payment saved up. With prevailing home prices in northern New Jersey, that figure could be as high as $65,000 (or more) depending on type and location of the home. According to mortgage industry executive and videocaster Barry Habib, 74% of millennials are ready to purchase a home within 12 months but 88% say they have significantly less than 20% of the sale price saved up for down payment. In fact, 14% state they have nothing saved up.

What’s a young first-time home buyer to do?

FHA-backed mortgages for first-time buyers
If you’re a millennial buying your first home, don’t despair—this is not your father’s real estate market anymore and that includes the types of home loans available. Has your real estate agent mentioned FHA loans? These federally guaranteed mortgages enable you to put down far less on a home. In fact, you can have as low as 3.5% of the purchase price to put down, and less-than-perfect credit to qualify for an FHA loan (the minimum credit score is 580 to qualify, unless you are putting down at least 10%). As with all mortgages, the lending institution will make the determination regarding loan qualification.

You’ll pay higher costs on the transaction, but these loans are the leg up many young buyers need to realize the dream of home ownership.

What is the FHA
FHA stands for the Federal Housing Administration, an entity of the Department of Housing and Urban Development. It provides mortgage insurance on loans made by FHA-approved lenders on single family and multi-family homes in the U.S. FHA-backed mortgages are also available to certain borrowers who have filed bankruptcy or foreclosed on a previous property.

Work with a real estate brokerage that shows you the ropes
At CENTURY 21 Cedarcrest Realty, we work with many first-time home buyers at all income levels and with a variety of down payment savings. We understand what it takes—beyond showing homes in certain towns or within certain budgets—to get a real estate transaction from start to finish with as few hiccups as possible. One of the biggest roadblocks is qualifying for a mortgage, so we provide advice about mortgage options—including FHA loans; we also stress the importance of getting pre-approved for a mortgage in the tight market we operate in, which you can read about in this prior blog post. Contact us to get your home buying process started in Caldwell at (973) 228-1050 or Little Falls at (973) 364-1111.

New Jersey Real EstateReal Estate Tips December 12, 2013

The Basics of an FHA Loan

If you’re interested in buying a home, you will have several options available to you in terms of a loan. FHA loans have gained in popularity over the years because of their low down payments and more forgiving requirements. FHA loans are funded by the Federal Housing Administration, and they are a great option for first-time homebuyers who may not have a lot of money to put down.

Who Qualifies for an FHA Loan?

To qualify for an FHA loan, you will need to have a reasonable debt-to-income ratio, with some programs accepting up to 55 percent debt. You don’t need to have an outstanding credit score either, just a decent one. Where some conventional loan programs require credit scores of over 750, FHA loans will consider people with scores of 650.

There are also some benefits for first-time homebuyers. FHA loans allow for co-signers, which is great for new graduates. You can also use gift money to put toward the down payment, and sellers can contribute to the closing costs, paying up to 6 percent of the purchase price.

What are the Benefits of an FHA Loan?

FHA loans are not for everyone, but they certainly have their benefits. Consider the following:

  • Low down payment of 3.5 percent

  • Low closing costs

  • Easy credit qualifying

  • Gifts and co-signers allowed

  • No prepayment penalty

  • More leniency during hard times

  • Funding for home improvements/renovations

Is There Anything Else I Should Know?

FHA loans include mortgage insurance, which is added into your monthly payment. This ongoing insurance can cost more than private mortgage insurance with conventional loans. There have been changes made regarding this insurance, which can fluctuate at any time. If you do have good credit and strong income, you can get other offers that are competitive and may not require you to put down a large down payment.

The loan you choose is an important decision, so take your time. You may find that an FHA loan is perfect for your situation, especially if you’re credit score is subpar or you have little money to put down.