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First Time Buyers

How does a young first time buyer get approved for a housing loan? What loan is best and what interest rate might a lendor give?

For exacts imagine 20 year old unmarried looking for fixer uppers, has stable job $40,000 a year, credit score of 710.
  • October 23 2012 - US
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Answers (5)

You might want to start by talking with a loan officer at the bank or credit union where you do your banking. You might also consider touching base with a local realtor to see what fixers are available in the area you're considering. Many realtors can recommend a mortgage broker that can also give you an idea of what you can afford.

Other considerations: Find out what requirements that lender has before giving a mortgage. Some lenders require a working bathroom and functional kitchen. You should also have money set aside to make necessary repairs and improvements.

Congratulations - it sounds like you have your life together for someone that is 20 years old. Many your age are only thinking about the next electronic devise to buy or perhaps a new car. I feel a house is a much better investment.
  • October 23 2012
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I'm 23 and looking to buy a house but I only make $22,500 a year. I'm now realizing it's almost impossible to find an affordable house for someone in my income bracket. Please tell me what job you have at 20 that pays $40,000? I'd love to know your secret! :-)
  • October 23 2012
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We all have to start somewhere.  Very few people start out with a high salary, they work their way up to it.  Meanwhile, for those who want to buy a home, they work at making sure their credit scores are good, their debt to income ratios are good and they are realistic about what they can afford so they don't become house poor.  Most also start by putting away some money every month - the best way is to have it taken out and sent to a savings account before you get your paycheck.  Those savings will grow and help you afford a downpayment.  I would suggest that you find the local HUD counselor in your area.  They can help you set up a budget and a timeline to help you be able to buy a home.
  • October 23 2012
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To user 0985550 - there are many different types of loans available.  Some are based on the geographic area you are buying in (such as a USDA rural loan), some  on how much money you have saved for a downpayment (an FHA loan requires less money down then a conventional loan), some on the type of home you are purchasing and whether it will need work or not (a rehab loan may be your best bet if you are buying a fixer-upper) or if you are buying a foreclosure, the bank or governmental agency that is selling it may have some special loans available to you. If you are a veteran, you should use a VA loan. You may also be eligible for local state and county financing.

Where to start?  Typically I recommend finding a good LOCAL mortgage lender. A bank or credit union will typically only loan their own money and will have a more limited portfolio of loans available. A mortgage banker broker will be able to loan money from the bank that he works for AND he will be able to shop the other lenders to see if one has a better program for you then he has. A mortgage broker doesn't lend his own banks money, but he shops banks and other lending institutions for a loan for you.  If you expect to be using any first time homebuyer grant monies, then you will need to check with the agency handling those funds since only certain lenders are typically authorized to issue them.

How to find a good LOCAL lender - you may want to start by talking to friends who have purchased a home recently, or your bank or credit union. An excellent source for a referral to a good lender is your Realtor.  They will want you to use a local reputable lender since they know that will get you to a much smoother closing.

A good lender will give you alternatives - he or she will go over the programs that you are eligible for and will help you to determine which program is the best fit for your needs.  He'll discuss with you if a 15 or 20 or 30 yr loan would be your best alternative based on how long you intend to be in the home and how you expect your income to change over that time.

One thing I always recommend is that you ask the lender to run the numbers 2 ways - the standard way is how much buying power do I have based on my credit rating, debt to income ratio and overall financial picture. That way you know how much you can afford if the right home pops up. I typically do not recommend that anyone buy at the top of their price point - people who do have a tendency to be house poor.  When all your money is going toward your house payments and you don't have money to go out to eat or to a movie or to socialize with friends, you will end up hating your home.  As a result, I tell buyers to ask their lender to run the numbers a second way - tell the lender how much you want to spend each month on your house payments and ask them to run the numbers in reverse and tell you what price point of a home you should be looking at.

Good luck
  • October 23 2012
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  • October 09 2013
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