It’s easy to find information on the internet on how to buy a home. It’s tougher to figure out who these posts are talking to. Are they speaking to a first-time homebuyer? Or someone who has done this before?
It matters, because the homebuying process—and how you pay for that home—varies dramatically depending on circumstance.
There is a diverse range of buyer types looking for new homes. According to the National Association of Realtors’ 2015 report, more than 33 percent of homes sold that year were to first-time homebuyers, and their experience was probably much different than that of the 67 percent of people buying their second home. We’ve broken down the instances where the buying process is different between the two groups and—perhaps just as importantly—where it remains the same.
Note: The information provided in this post regarding buying second homes while selling the first, and does not necessarily apply to vacation homes or second, separate residences. Speak to an experienced lender or Realtor to learn more about these situations.
1. Where is Your Down Payment Coming From?
This question is fairly simple for first-time homebuyers, if not not easy. If you want to avoid paying mortgage insurance, you’ll probably need to pay 20 percent of the home’s value upfront. If, for example, you want a $200,000 home, you’ll need to have $40,000 saved up for a down payment. You can collect this entire sum through personal savings, or you can receive cash gifts from qualified relatives.
Second-time homebuyers may be less concerned about a large down payment, because they are probably expecting to bring this money in by selling their previous home. That requires that they sell their previous home first. If they have completed the mortgage on their first home, then they should have plenty for the next down payment. Otherwise, they’ll only have the equity from their last home to use toward the new home, because the rest of the sale will go to paying off the principal on their previous mortgage.
Both new and experienced homebuyers should be prepared for emergencies by having a healthy “rainy day” fund left over, able to pay off bills for several months.
2. What Kind of Mortgage Do You Need?
Most new homebuyers will need a 30-year mortgage to be able to afford a home. There are many options available to them; fixed rates or adjustable rates, conventional or FHA-backed, as well as other specialty plans. There is no black-and-white answer on which will work best for you. Speak to a lender to make a plan ideal for you.
Those looking for their second home may be in the same position, depending on how much equity they drew from selling their previous home. If they only lived in the home for a short period, they may also be looking at a 30-year mortgage. If they fully owned their previous home and are looking to upgrade slightly, they may need much less financial help. Therefore they can look to 15-year or adjustable rate mortgages, which typically come with much smaller interest rates.
Both kinds of buyers should consult with an experienced lender to find out what their best option is, however.
3. Are You Settled Until Closing?
This is one area where first-time homebuyers come out ahead. A 2016 study from Realtor.com reports that the average closing time during 2016 was 50 days. That’s 50 days after a bid is made to the final paperwork being completed. If you’re a renter, you can continue renting until you’re ready to move in.
Second-time buyers may find themselves in a sticky situation, however. It’s ideal to sell their home before making an offer on a new one, which means they may need someplace to crash for a few weeks. The best situation is to place a bid on an available home as soon as possible after theirs sells…which means they need to do their research in advance. Or, if they’re lucky, they can negotiate with another seller to make the purchase go through only if the buyer’s own home sells.
You can read more about selling-while-shopping advice here.
4. How Much Is Uncle Sam Helping You?
If you’re a first-time homebuyer, Uncle Sam may be willing to help you out quite a bit. These benefits differ from state-to-state, however our home of Florida offers two: The Florida First-Time Homebuyer Program offers 30-year fixed rate loans to qualifying (by income and credit score) buyers, while the Florida Housing Mortgage Credit Certificate Program can help first-time homebuyers to claim up to $2,000 on the mortgage interest they pay every year.
That’s not to say second-time homebuyers are without hope of government help. Check with your local lenders to see what opportunities are available in your county. One option for buyers near us in Broward and Palm Beach Counties is the Own A Home Opportunity Grant Program. There is no first-time homebuyer requirement. This program offers fixed rate, 30-year mortgages.
5. What Stays The Same?
Although buying a home is different on many levels for first-timers and stepper-uppers, some of the most important things remain the same.
A good credit score and consistent source of income will always help you. Saving up for a large down payment can never hurt. And you should always do due diligence before jumping to buy a home; make sure that everything is in proper working order before you commit.
Perhaps most importantly, always speak to a qualified mortgage professional to understand how much home you can afford, and what the best way to pay for that home. Getting preapproved is an important step that could make the difference on whether your bid is accepted or whether someone else gets the property you desire. No matter whether it’s your first—or 15th—home.