by Payel Kundu
Nov 5, 2023 2:00 PM EST
Home ownership has long been considered part of the American dream; purchasing one will probably represent one of your largest and most significant investments. As with any major purchase, first-time home buyers need to understand everything as clearly as possible when making this type of commitment – from price comparisons to understanding processes involved with buying their dream house for themselves! Here is a guidance for the first time buyers of home.
1. Eligibility:
New Jersey first time homebuyers don’t necessarily need to have never owned property before in order to qualify as first-time buyers; rather, their name must not have been on any property deed in the last 36 months – whether or not they resided there at that time – in order to be considered first time home buyers for loan purposes; though loan terms and requirements can and often do vary significantly and change over time.
2. Loan Options:
Federal homebuyer programs such as FHA, USDA and VA loans are open to all U.S. citizens and legal residents – each program may impose qualifications such as only being available if active duty military personnel, veterans or family members thereof meet those qualifications; similarly FHA loans do have requirements such as being an FHA homeowner before becoming eligible.
FHA Loans:
The Federal Housing Administration (FHA) is part of the United States government. HUD/FHA loans provide significant advantages to first-time home buyers. Notably, down payments as low as 3.5% and more flexible credit qualifications make these loans particularly suitable.
Your lender can explain in greater detail, but general qualifications for FHA financing include:
- Minimum credit scores required to qualify for a 3.5% down payment are 580; expect to put down 10% if your score falls under this number.
- Maintain an ideal debt-to-income ratio between 43%-44%
- Reliable income with proof of employment- Additionally, an FHA loan must only be used as your primary residence – so this should not be used when buying investment properties for the first time.
An FHA loan requires mortgage insurance (MI), to further protect lenders in case of nonpayment of payments on time. MI costs range between 0.45%-1.05% of home value annually (plus an upfront premium of 1.75%) so don’t forget this cost when calculating monthly mortgage payments.
USDA Loans:
The United States Department of Agriculture offers government-backed loans which may be an ideal fit for first-time homebuyers looking for rural properties to call their own.
Qualification for a USDA loan requires your property being located within an approved rural area and that, like an FHA loan, it be your primary residence.
Your credit must be at least 640 to qualify, while also possessing reliable income of no more than 115% of the area median income for a USDA home loan.
VA Loans:
Veterans Benefits Administration home loans provide great financing solutions with very attractive terms to qualifying veterans and active service members, both current and past.
As a first-time homebuyer, taking out a VA mortgage loan could mean getting into your dream home without making payments upfront and with reduced mortgage insurance costs and interest rates.
Your lender may require that you present them with a Certificate of Eligibility from the VA as eligibility is dependent upon various criteria like duty status, length of service, credit history and income.
VA Native American Direct Loan:
Qualifying U.S. veterans looking to buy or build on Federal Trust land may qualify for the Veterans Affairs Native American Direct Loan (NADL).
As with traditional VA loans, NADL loans require both a Certificate of Eligibility and satisfactory credit history to qualify. Furthermore, tribal organizations that participate in VA direct loan programs must meet certain criteria, while any home purchased on Federal Trust land should serve as your primary residence.
3. Capability:
Home is such an extensive investment, it is wise to be familiar with their mortgage and down payment capabilities before embarking on house hunting. Set a realistic budget before searching and each partner can realistically develop a wish list that falls within their price range – some suggest 20% but even as little as 3% down is acceptable depending on personal circumstance; here are a few savings suggestions:
- Setting aside tax refunds and work bonuses: Anyone planning on purchasing their dream home would do well to set aside their April tax refund for such an important investment as buying real estate.
- Establish automatic savings: With so many savings apps now available online and mobile phones to people to help save, taking advantage of them to set aside an amount for future investment could prove wise. Use what’s out there by labelling investments so it becomes apparent where exactly your savings will be going.
4. Selecting an Agent in Real Estate Transactions:
As home buying can be an intimidating and complex experience, finding the appropriate real estate professional for yourself is crucial to making it simpler.
New Jersey currently hosts four brokerage relationships:
These relationships impose specific legal duties and responsibilities upon both the licensee (client), as well as their representative agent or broker (liaison agent or transaction broker).
Representing either seller or buyer.
All four categories of agents must obtain their license from the New Jersey Real Estate Commission (REC), part of the Department of Banking and Insurance. In order to gain one, agents must demonstrate to REC their honesty, reliability, character, and integrity – attributes which must be established through extensive interviews conducted prior to being granted an agency license.
All licensed real estate agents operate under the authority of a broker, making referrals an excellent source for finding trustworthy agents. Consult someone who recently bought or sold property about their experience as well.
Assemble a list of multiple agents and talk with each one before selecting. Look for someone who listens carefully, understands your needs, and can provide reliable judgment in matters regarding local communities and services available in them. Ideally, an ideal agent knows their area well with ample resources available in it to support the search for you – overall you should seek an agent that makes you comfortable while giving knowledge and services you require for successful relocation.
5. Considerations to Keep in Mind When Locating Your House:
- Quality and availability of schools and libraries;
- Proximity to work, major highways and mass transportation:
- Convenient shopping, religious centers, hospitals and recreation facilities/parks;
- Property and income tax rates and community expenses as compared with similar homes in other neighborhoods (i.e. association fees, snow/trash removal services and common ground maintenance);
- Utility expenses such as trash collection and sewer disposal (past utility expenditures can be obtained directly from the utility provider);
- Accessing public services such as police and fire protection;
- Local zoning ordinances and conditions affecting other properties within your neighborhood.
These are just a few considerations one must keep in mind when buying their first home in NJ. There may be additional factors and more complex sectors one needs to research further for this purchase; but a guidance for the first time buyers of home should be prioritized first and taken care of immediately.
Disclaimer: Please be aware that this article offers only information and should not be seen as advice; all warranties implied and express are disclaimed; therefore it is up to each reader to conduct their own due diligence before acting based on this material.
