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Florida First-Time Homebuyer Guide 2023

Buying a home in the Sunshine State is a dream for many would-be homebuyers – from the white sand beaches of Miami to the green hues of the Everglades, Florida has a lot to offer in property ownership. While the average price of homes has risen significantly since the onset of the COVID-19 pandemic, Florida has instituted a number of homebuyer programs to make buying a home easier and more affordable. 

Are you thinking about buying your first home in Florida? It’s worth taking time to find the right mortgage program for your needs. Read on to learn more about Florida’s housing and mortgage programs available specifically to first-time buyers. 

Resources for First-Time Homebuyers in Florida

While the Sunshine State doesn’t offer as many resources as some other states, there are a few perks that come with being a first-time shopper on the road to homeownership. 

  • Advantageous mortgage loans: Florida Housing offers a Homebuyer Program that offers 30-year Fixed-Rate first mortgage loans at more affordable interest rates. 
  • Down payment assistance programs: Florida offers forgivable and non-forgivable down payment assistance program options. 
  • Closing cost assistance: Closing cost assistance programs are available for veterans and other community service workers buying a home for the first time. 

Scout the Sewer Lines & Septic Tank

Sure, the house looks great on the outside, but who’s to say if the previous owners loved to flush baby wipes? ‘Getting sewer lines and septic tanks scoped during the inspection is our official recommendation, but in case you had to sidestep an inspection to close the deal, getting it done after the fact is just as helpful.

This isn’t just to check for blockages — it’s to check for damaged and leaky pipes as well. These problems can lead to backups, flooding, foundation damage, and a host of health risks.

Qualifications for First-Time Homebuyers in Florida

While individual homebuyer program options might have variable income limitations and credit qualification standards, there is no list of qualifications you’ll need to meet on a state level to buy a home. The only limitations on homebuying in Florida are related to mortgage qualifications, which vary by lender, area, down payment, loan program, and other relevant personal details. Buying a home in cash if you are able can help you avoid these qualification standards. 

Questions to Ask Before Buying Your First House in Florida

Getting a home loan is a big decision – so it is worth asking yourself a few questions before deciding whether you’re ready to buy your first house in Florida. 

1. What Are Your Personal Long-Term Goals?

Think about and outline your personal long-term goals and consider how a home fits into your life’s puzzle. For example, if you’ve got a job that you love or you’re thinking about starting a family, starting the homebuying process now might make sense. 

2. What is Your Financial Situation?

After your long-term goals, your financial situation is another important factor to determine when and whether you should buy a home. Buying a home can be a long commitment, and you will also need to consider the cost of items like homeowners insurance and maintenance in addition to your monthly mortgage payment to determine a reasonable budget. A mortgage calculator like this one available from New American Funding can help you determine your budget needs. 

3. What Are Your Housing Needs?

Your current and future housing needs are key indicators that can tell you whether you are ready to buy a home and how you should shop. For example, if you know that you want to stay in your current area to start a family, you might want to look for larger homes that can accommodate your future needs. If you think it’ll just be you and your spouse for a while, you can shop for smaller properties and budget more money toward renovations. 

4. What is the Real Estate Market Trend?

As you start to look for housing opportunities, take note of how real estate prices are changing over time. Examining your local housing market will give you direct insights into how property prices are changing, which can help you buy a home at the most opportune time. For example, if you notice home prices falling, it can be a good time to consider starting to shop for a mortgage lender. 

5. What Are Your Mortgage Options?

Did you know that Florida residents have access to multiple types of home loans? The type of loan that you use to buy a home will determine the amount you’ll need in a down payment, how much you’ll pay in interest, and what type of property you can buy. 

Before shopping for a home, familiarize yourself with the multiple types of home loans available and consider how each option fits your needs. If you have a strong credit profile and want to access the lowest rates, a conventional loan could be the right choice. If you’re looking for a home loan with more flexible qualifications, a government-backed loan could be a better option. 

First-Time Homebuyer Statistics in Florida

  • Average home price in Florida: $390,856

  • Minimum down payment in Florida: 0% (USDA and VA loan)

How to Apply for First-Time Homebuyer Loan Programs in Florida

While buying a home for the first time can seem stressful, the truth is that there are only a few steps you’ll need to go through when buying a home. Most of the process of homebuying – like the title transfer and appraisal review – is conducted by the professionals dedicated to helping you buy, including your NAF Loan Officer and your real estate agent. 

Though the homebuying process may vary by individual, most first-time buyers can use the following steps to find buying success. 

1. Determine Your Budget

The first step in determining your mortgage budget is to take an honest look at your finances and decide how much home you can afford. Affordability calculators help you get a more complete look at the full cost of homeownership and can give you a clearer picture of what you can shop for based on your monthly ability to cover mortgage payments. Be sure to consider requirements like homeowners insurance, mortgage insurance, and utilities that were previously covered by rent when setting a preliminary budget. 

2. Get Pre-approved for a First-Time Home Mortgage

While a mortgage calculator can give you a rough idea of a budget, the most accurate way to learn more about what you can afford is to get pre-approved for a home loan. A mortgage pre-approval is a tentative approval for funding from a mortgage lender that tells you how much funding you’re approved for, subject to underwriting. 

After being pre-approved, you can start applying for first-time homebuyer assistance programs. Some of the options that you have in Florida include:

  • Florida Assist (FL Assist): The FL Assist program offers up to $10,000 in down payment assistance on the most common loan types, including both Conventional and government-backed mortgages. The loan is issued as a non-forgivable, deferred second mortgage. 
  • The Florida Homeownership Loan Program (FL HLP) Second Mortgage: Like the FL Assist program, the FL HLP offers up to $10,000 in down payment assistance issued as a non-forgivable loan. It is issued as a 3% fully amortizing, second mortgage.
  • Florida Hometown Heroes Housing Program: The Florida Hometown Heroes Housing Program helps teachers, law enforcement officers, firefighters, and other community servants buy their first homes. Eligible buyers can access up to 5% of their home’s value in the form of a 0% non-amortizing, 30-year deferred second mortgage.
  • HFA Advantage PLUS Second Mortgage: Select low-income homebuyers may qualify for up to 5% in down payment assistance issued as a forgivable second home loan. This second mortgage is forgiven at 20% per year over its five-year term when used with Florida Housing’s conventional HFA Preferred loan option. 

Qualification for each program varies depending on income restrictions specific to your area. 

3. Hire a Real Estate Agent

Next, you’ll want to hire a real estate agent to assist in your property search. Real estate agents are home industry professionals who can assist you in finding a property, submitting an offer letter, and closing on a loan. Talk to a few family members and friends who have bought a home in the past for recommendations on how to find a real estate agent. NAF Homes*, an affiliate of NAF, can also make it easy to find local professionals by connecting you to a network of agents.

4. Start the Search for Your Dream Home

Now comes the most exciting part of the buying process – finding the perfect property to purchase. While online real estate databases are a great place to begin searching for homes on sale, ask your real estate agent to help you as you shop. Describe your must-have features to your agent and request that they put together a list of properties to tour. Real estate professionals maintain networks, which can grant them access to listings that have not yet made it to the public market. 

5. Make an Offer

It’s done – you have found the perfect property. Now, you will need to make an offer on the home and hope that the seller accepts a bid within your budget. While you can write your offer letter yourself, from a legal standpoint, this is a job better left to your real estate agent. If you write your letter yourself, you could leave out crucial sale details that slow the buying process later on. 

6. Conduct Home Inspection

If the seller accepts your offer, you are officially on the road to becoming a homeowner. After letting your mortgage company know that you’re going forward with the home sale, you’ll schedule a home inspection. During the inspection portion of the homebuying process, a professional home inspector will take a tour of the property and create a list of items that will likely need repairs or replacement. As a homebuyer, you can use this list to negotiate contingencies with sellers. 

Note that the inspection is not the same thing as the home appraisal portion of the lending process. During an appraisal, an appraiser walks through your property and assigns a rough estimate of the property’s value. Mortgage companies require appraisals because they cannot lend more money than a home is worth. If the appraisal comes in at a lower value than the final selling price of the home, there could be problems with closing your loan.

7. Close the Deal and Become a Homeowner

When the appraisal is returned to you and underwriting comes back clear, you’re in the final stretch of the homebuying process. All that is left to do is attend the closing meeting, where you’ll sign your mortgage loan and take control of your property. Your NAF Loan Officer will arrange closing on your behalf and provide you with a closing disclosure document. 

Review your closing disclosure before proceeding and point out errors you notice to your NAF Loan Officer early. Bring your disclosure, loan documents, a government-issued photo ID, and proof of your closing costs and down payment transfer to the closing meeting – and seal the deal on buying your first home. 

Four Traditional First-Time Homebuyer Programs in Florida

As a first-time homebuyer, you have a wide selection of home loan options valid in Florida. The following are four common loan types you’ll see between lenders as you compare your options. 

1. Conventional Mortgage: Conventional loans are the most common type of home loan and can be used to purchase any type of property. The minimum down payment for a conventional mortgage loan is 3%, but you will need to pay for private mortgage insurance (PMI) if you bring less than 20% down to closing. 

 To qualify for a Conventional mortgage, you’ll need a credit score of at least 620 points and a debt-to-income ratio of no more than 43%. New American Funding offers both Fixed-Rate and Adjustable-Rate Conventional loan solutions as well as high-value Conventional jumbo loans if you’re purchasing a more valuable property. 

2. FHA Loan: Federal Housing Administration (FHA) loans were created to help lower-income people buy a home. FHA loans have less strict credit qualifications and come with a minimum down payment of 3.5% in standard cases. A government-backed mortgage loan option, FHA loans have insurance from the Federal Housing Administration but are offered through individual lenders like NAF. To qualify, you will usually need a credit score of at least 580 points, a debt-to-income ratio of 57% or less, and proof of steady income. 

3. VA Loan: If you’re a current or former member of the U.S. Armed Forces or Coast Guard, you might be able to buy a home using a U.S. Department of Veterans Affairs (VA) loan. VA loans are one of the only options available that allow you to buy a home with no money down other than closing costs. While you’ll need to meet service requirements to qualify for a VA loan, this option can make homebuying more affordable by financing up to 100% of your home’s value. To qualify for a VA loan, you will need to receive a letter verifying your service and meet basic credit standards. 

4. USDA Loan: A USDA loan is a unique type of home loan that can only be used to purchase a home in a qualifying rural area as defined by the U.S. Department of Agriculture (USDA). If the home you want to buy is in a rural or suburban area, the USDA loan allows you to finance up to 100% of the home purchase price. This means that you will only need to cover closing costs before moving in. 

To qualify for a USDA loan, you will need to meet income restrictions relative to your area. You cannot earn more than 110% of your area’s median income, which varies by county. You will also need a minimum credit score of at least 580 points. 

What Are the Mortgage Rates in Florida?

Mortgage interest is a payment you make to your mortgage lender in exchange for providing you with funding – you can think of your mortgage interest rate as the “price” of your loan. Interest is included in your mortgage premium calculation each month, so you won’t need to budget extra to cover interest beyond your payment. However, tracking how interest rates are changing over time can be helpful in finding an affordable loan. 

Lenders like New American Funding keep mortgage rates updated with the most current market data to help you better research options in your budget. 

Enjoy the Homeownership Journey

As a first-time home buyer in Florida, there are various types of programs available to help you achieve your dream of homeownership. It’s important to prepare by saving for a down payment, understanding your budget, and researching the different programs. New American Funding, a trusted lender in Florida, can guide you through the process and offer customized solutions tailored to your needs.

Contact New American Funding today to start your journey towards owning your first home in Florida.

Florida First-Time Homebuyer FAQs

Is There an Income Limit for First-Time Homebuyers in Florida?

There is no legal limit on income for first-time buyers in Florida in general. However, individual down payment assistance options will have income restrictions related to the local average income.

Can a People With Lower Incomes buy a House in Florida?

Yes, people with lower incomes can buy houses in Florida. The state does not have a minimum annual income requirement to purchase a home. As long as your lender approves you for funding and a seller agrees to transfer the property to you, you are free to buy and sell as you see fit. 

How Much Does a First-Time Buyer Have to put Down in Florida?

The amount that you’ll need to put down on a home as a first-time buyer in Florida will vary depending on your selected loan program. Conventional loans require 3% down in most cases, while FHA loans require at least 3.5% down. USDA and VA loans require 0% down, allowing you to finance up to 100% of the purchase price of the property.

Does Florida Have First-Time Buyers Programs?

Yes, Florida offers a series of first-time buyer programs that offer down payment and closing cost assistance. The programs are issued through the Florida Housing Finance Corp. and have income limits that vary depending on where you live. 

Do you Have to Pay Back Down Payment Assistance in Florida?

Yes, you must pay back the down payment assistance that you receive as a first-time homebuyer with the exception of the HFA Advantage PLUS Second Mortgage.

How Much do First-Time Homebuyers Have to Put Down in Florida?

There is no legal requirement for first-time buyers’ down payment in Florida, but there are requirements that vary by mortgage type. USDA and VA loans require 0% down for qualifying buyers, while Conventional loans require 3% down minimum. FHA loans have the highest minimum required down payment at 3.5%. 

Not everything needs to be tackled right away, and not every problem requires a professional solution.

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Is It Better to Build or Buy a House?

The median sale price of a home in the United States has steadily risen over the past year. According to numbers from the Department of Housing and Urban Development, the average “sold” price topped $450,000. And while housing inventory has more than doubled since this time two years ago, interest rates for 30-year mortgages are currently hovering around 7%. 

Buying a house is an exciting thing, but it’s not surprising that many potential buyers might be considering alternative options. One question coming up quite a bit? “In this market, is it better to build or buy a house?”

Things to consider

Before you decide if it’s better to build or buy a house, think about the following three things:

BudgetInventoryLocation
How much money do you have saved for a down payment? For closing costs? For furnishings? What can you reasonably afford? What’s your “no-go” number? Are there a lot of houses for sale near you? How many have your desired amenities? How many check all your boxes? Are you not finding anything you’re really loving?Are schools important to you? Do you need to be within walking distance of your favorite restaurant? What will your commute look like? How close or far will you be from your family?

Regardless of your path forward, these three factors will play a vital role in your decision. Why? Because building a house is generally more expensive than buying an existing one. Because you may not need to build a house if an existing one checks your boxes. Because building one may require you moving well out of town. 

Trying to figure out if you should build or buy is like a “choose your own adventure” game. You may feel confident in one answer, but it may lead you down a road you weren’t expecting.

Buying your home

Unless you’ve got a giant bag of cash, your purchase will involve a detailed process. We’ve covered the process before in other blogs, but here’s a quick refresher: pre-qualifcation, pre-approval, making an offer, going through underwriting, closing. There are sub-steps built into each of those steps, but that’s the gist. 

Because it’s so well-documented and regulated, if you prepare accordingly, it’s a relatively pain-free process…especially when you work with Naf Financial. Hey, have you gotten your free rate quote yet?

It might be better because…

Buying is more common than building because, let’s be honest, there are so many homes already built. Building may come with the ability to pick and choose every little detail, but many buyers don’t have the time or money for the process of building. And, beyond that, buying an existing home comes with its own set of pros:

  • In many cases, these homes are move-in ready. That’s good for people on a tight schedule.
  • Because it’s the standard, there are more loans available for buying existing homes.
  • Thanks to those loans and other factors, it’s often generally cheaper to buy.

One con to consider? Depending on the market, you may face stiff competition from other prospective buyers.

Building your home

Just like buying isn’t as simple as throwing down a bag of cash, building isn’t as simple as buying a truckload of 2x4s and pouring some concrete. Unless you’re paying all cash for the construction, you’re going to need a loan—not just for the construction and the labor, but for the land itself.

One-time close loans are a convenient option that allow you to pay for the land and labor with one package. Otherwise, you’ll be looking at two separate mortgages for the land and the construction itself. That means two applications, two underwriting processes, and two closings. Never mind the two payments part of it. 

The process of building a home is also a lot more involved than simply buying one. Here’s a quick look at it:

  1. Buying the lot
  2. Get the plans
  3. Hire a team
  4. Obtain permits
  5. Start construction
  6. Continue construction
  7. Inspections, inspections, inspections
  8. Closing

It might be better because…

While building a house might be a little (or a lot) more complicated than buying a house, it comes with its own set of benefits. For starters, what’s not to love about whole-home customization? We’re talking location, layout, lighting, flooring, fixture finishes, equipment…everything. With that customization, you get access to new options for energy efficiency, meaning your new construction home can help you save on bills while saving a little bit of the environment. And, because you’re building from the ground up, you face little to no competition. 

Downside? The COVID-19 pandemic continues to have lasting impacts on the industry, meaning lead times are longer and materials are more expensive. Now, speaking of expenses…

The cost of building

Details vary, but Architectural Digest reports that building a house can cost anywhere from $500 to $1,000 per square foot depending on location. Meanwhile, American Home Shield’s 2022 American Home Size Index shows that the average size of a house in the United States is roughly 2,500 square feet. 

Crunching the numbers shows us that building a house that size can cost anywhere from $1.2 to $2.5 million—averaging out to $1.875 million. 

If that number caused your jaw to drop, take this bit of solace: Other resources pin the average cost of a custom, similarly sized home at roughly $500,000—just a little north of the average “sold” price of a home in 2022. 

What’s it all come down to? When building a house, your location, equipment, and finishing touches will push your costs up or down. The safe bet is to budget for more than you initially expected, or were quoted for.

Oh, and don’t forget the taxes

Regardless of whether you choose to build a house or buy one, please remember one thing: Property taxes. You’re going to pay them either way, but property taxes on new construction and custom homes are often higher than those for existing homes—even remodeled ones. Again, it’ll come down to your budget, and your budget should include estimates for property taxes. 

And hey, if you choose to borrow from NAF Financial, we’ll help you prepare those estimates either way.

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Home Buying, Defined: 10 Mortgage Definitions You Need to Know

Between the acronyms, abbreviations, and industry-specific jargon, it’s easy to see how the mortgage process can come with a learning curve. Good news: You don’t need to know all of the lingo to achieve homeownership, but there are a handful of mortgage definitions you should understand before you kick off the process. Here are our top ten:

#1. Interest Rate

Let’s cover one of the basics first. An interest rate is fundamental to all forms of lending. In its simplest form, interest is what you pay a lender to borrow money on top of your principal, or the original amount you borrow. While you’ll always pay back more than what you borrowed, a lower interest rate means you’ll pay back less “extra.”

A lot of things go into determining your specific interest rate, including the amount you’re borrowing, your down payment, your credit score and history, and the length (or term) of your loan. Oh, and market conditions. Market conditions can affect the environment around you—including whether or not you’re in a buyer’s or a seller’s market.

#2. Buyer’s/Seller’s Market

When you’re ready to buy a home, your real estate agent may tell you it’s either a “buyer’s market” or a “seller’s market.” The former, a buyer’s market, is better for you, the borrower, because it generally means there are more available homes than buyers, which means less competition and lower prices. The latter, a seller’s market, is more competitive—often leading to bidding wars and greater potential for losing out on the home you’ve had your eyes on due to increased competition.

In a seller’s market, where homeowners are looking for top dollar from buyers, it’s important to have a bona fide pre-approval from your lender. If you’re interested in knowing what you can afford to offer before you start your house hunt, get your free rate quote here. 

#3. Buydown

A buydown is related to both your interest rate and the market you find yourself in, and it allows borrowers to use cash to temporarily lower their interest rate for a set amount of time—usually one, two, or three years. For example, a 3-2-1 Buydown might allow you to lower your original rate by 3% during your first year of homeownership, 2% during your second, and 1% your third before going back to your initial interest rate.

How are buydowns paid for? There are different methods, but one of the most common is the application of seller or builder credits, issued at closing. So, for example, if your seller offers a $15,000 closing credit, you may be able to apply that cash to the purchase of a temporary buydown. In a high-rate environment or a buyer’s market, where sellers are under a little more pressure to sell, this option could save you thousands of dollars over the lifetime of your home loan.

#4. Closing Costs

Speaking of closing credits, let’s go over closing costs. Closing costs typically include all of the different fees you’ll pay in addition to the price of your new home, like appraisal, attorney, escrow, and title fees, as well as credit report costs. More often than not, you’ll pay for those with one check at the end of your purchasing process (and they may be included in the same check you write for your down payment). 

A good lender can help you plan for those fees ahead of time to ensure you have the cash set aside when the time comes to spend it.

#5. Equity

Equity is the overall value of your home, minus your remaining mortgage balance. Like interest rates, your home’s value may fluctuate over time with market conditions, but as long as you owe less than what the property is worth, you’ll have equity. 

Like interest rates, your home’s value may fluctuate over time with market conditions, but as long as you owe less than what the property is worth, you’ll have equity.

For example, if your home is worth $400,000 and your mortgage balance is $300,000, you’d have $100,000 in equity. You can increase your home’s value and subsequent equity by paying down the balance, or by remodeling or renovating the property. 

Did you know that a mid-range kitchen remodel has a return on investment of almost 60%? According to Zillow, a $64,000 remodel can add almost $38,000 of value to your home. 

For additional ideas, check out another of one of our recent blogs, The Renovating a House Checklist You Absolutely Can’t Skip.

#6. Loan-to-Value (LTV)

LTV, or loan-to-value, is a ratio used to describe the overall size of your loan versus the value of the home you’re buying. It will always be expressed as a percentage and comes from dividing the loan size by the home’s value. LTV is critical in determining your loan options, borrowing power, down payment, and whether or not you’ll need to pay private mortgage insurance (PMI).

Some home loans will require an LTV of 97.5%, which means you’ll need to put down just 3.5%. Other home loans require an LTV of 95% or less, which will require a higher down payment. Remember this general rule of thumb: The higher your down payment, the lower your LTV. 

Remember this general rule of thumb: The higher your down payment, the lower your LTV.

#7. Debt-to-Income (DTI)

DTI, or the debt-to-income ratio, is the percentage of your gross monthly income that’s used to pay monthly debts, and it helps lenders determine how much of a risk you are. Borrowers with a low DTI are generally seen as better with money management, and therefore less risky. The exact formula for calculating front-end DTI is:

DTI = (Expenses ​/ Gross Monthly Income) x 100

DTI is often split into two forms: Front-end and back-end. 

  • Front-end DTI compares the cost of your living expenses (i.e. rent or mortgage) to your gross monthly income.
    • If your mortgage payment is $1,500 and your gross monthly income is $6,000, your front-end DTI would be 25%. 
  • Back-end DTI includes other financial obligations, like credit card payments, student loans, car payments, child support, alimony, and more.
    • If your monthly debts amount to $825 and your gross monthly income is $4,750, your back-end DTI would be 17%. 

So what’s a “good” debt-to-income ratio? We cover that in depth in this blog, but a lower DTI is always better. Different mortgages have different debt-to-income requirements, and lenders may have additional requirements beyond that to help mitigate risk. 

#8. Funding Fees

Funding fees, like closing costs, are fees that borrowers pay to fund the loan and protect lenders from loss. Government loans like VA and FHA loans have funding fees, but those may be waived depending on individual loan circumstances. Your loan originator can help you find out if waivers are available for your specific loan type.

#9. Loan Originator

Speaking of loan originators, these professionals are different from mortgage brokers, because they’re representatives of the financial institution that’s helping buyers with the mortgage application process. A mortgage broker, on the other hand, is a licensed professional who works on your behalf to secure financing. 

Basically, a loan originator works for a lender and a broker is an independent agent. 

#10. Underwriting

Once your application is complete and submitted (but before you get keys at the closing table), you’ll go through underwriting. Underwriting is the process lenders use to assess an applicant’s income, assets, credit, and risk. 

During this process, lenders comb through your personal information and financial records to determine whether or not you qualify for a loan. They’ll determine your LTV, your DTI, your interest rate, and your closing costs, so it’s important to get your affairs in order well ahead of time to ensure the process isn’t held up. 

Did these mortgage definitions help you better understand the mortgage process? Is there anything else we can clarify for you? Let us know on social media, check out our full glossary, or get in touch with one of our experts for more information. We’re always here to help!

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Buying a House “As-Is”: What It Means & What You Need to Know

Tight on time? Working with a bottom-dollar budget? Fancy a fixer-upper? If you answer “yes” to any of these questions, buying a house “as-is” might be the right move for you. But before you go searching, read through this blog to make sure you know exactly what buying a house “as-is” means, and the things you should consider well ahead of making an offer. 

What does buying a house “as-is” mean?

The answer to this one is fairly simple: Buying a house “as-is” means you’re buying a home that’s sold in its current condition—warts and all. 

On the upside, these homes are often priced accordingly, because “as-is” homes are rarely in perfect condition. Sellers realize that there’s some work that needs to be done, and they’re willing to settle for less than they would if the home was turnkey. 

The downside, however, is that because “as-is” homes are sold as-is, sellers are stating upfront that they’re not going to make any repairs or touch-ups prior to exchanging the keys. What you see is very much what you get. However, “as-is” isn’t always synonymous with “bad condition.” In fact, while a home’s condition may be one factor that leads to an “as-is” sale, sometimes sellers simply want to sell the property quickly. 

Four considerations to make before buying

We won’t call this official mortgage advice, but consider the following four things before putting an offer on an “as-is” house:

Don’t skip the home inspection

These days, buyers are sometimes hesitant to ask for home inspections. After all, a seller’s market led to a surge in cash offers, bidding wars, and waiving contingencies. However, because the market has cooled off a bit and home prices have started to fall (slightly), there’s no need to skip the inspection—especially if you’re buying a property “as-is.”

Said simply, a home is a huge investment, and a thorough inspection can protect that investment or keep you from getting involved in something you’re not financially ready to maintain. An inspection is less about trapping the seller or uncovering “gotchas,” and more about making sure the house is being sold as described, “as-is” or not.

Explore home warranty options

We’ve got in-depth coverage on home warranties in this blog, but here’s the gist: A home warranty is not required, but certainly recommended if you’re buying a home that’s in questionable condition. You can either purchase a plan yourself or ask the seller to provide one, but it’ll usually cover servicing and maintenance for the home’s appliances, plumbing, HVAC systems, roofing, and other parts of the dwelling.

Make sure it meets minimum requirements

Fun fact: Mortgages aren’t just handed out for any property. Many home loans—including most government-backed mortgages—have “standards for livability” that must be met before finalizing the sale, regardless of whether or not the property is being sold “as-is.”

For starters, a home is almost always required to be structurally sound. If it’s got walls, windows, a ceiling, and a roof, you should be in good shape. Some loans may require access to safe drinking water, and USDA loans specifically may require up-to-date electrical systems and functioning heating and air conditioning.

If certain requirements aren’t met, appraisers may decide that repairs must be made before closing, which can delay or derail the process completely. For this reason, cash offers—which require no mortgage—are oftentimes more palatable for “as-is” sellers.

Crunch the numbers

Consider this: When it comes to “as-is” homes, you’re not just buying the house. You’re buying whatever repairs and renovations need to be made to make the house a home. “As-is” properties may require new doors, windows, lights, flooring, and/or pest control (among other things). These seemingly little projects can add up to tens of thousands of dollars quickly.

Sure, you may save on the purchase price, but you’re going to want to make sure you have a mortgage that includes the cost of repairs or have enough cash on hand to get the ball rolling on repairs on day one.

Weighing the pros and cons

Buying a house “as-is” comes with a variety of its own pros and cons. 

Pros

Like we said earlier, “as-is” homes are typically priced lower. And because there’s not a lot of “work” to do on the homes before closing, the timeline from offer to closing may be expedited. Lastly, if you’re interested and have the funds available to do so, “as-is” homes offer a nice foundation for flipping.

Cons

When you include the down payment, closing costs, and repairs, you may see higher “all-in” costs. Additionally, not every state requires a “Seller’s Disclosure”, which would identify the home’s issues and alert you to them ahead of time. Finally, as we mentioned earlier, a property’s poor condition may prevent you from qualifying for certain loans. 

Now that you know what “as-is” means, are you more or less interested in buying a house in that category? Whenever you’re ready, we’ve got home loan pros who can help.

When it comes to “as-is” homes, you’re not just buying the house. You’re buying whatever repairs and renovations need to be made to make the house a home.

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Concerning Coverage: Home Warranty vs. Home Insurance

Your home is a huge investment. Protect it.

When it comes to covering your home inside and out, you’ve got options. One option, often required by mortgage lenders like us, is home insurance. Your other option, for a bit of bonus coverage, is a home warranty program. Let’s talk through the differences and see how they stack up against one another, shall we? 

Home Warranty vs. Home Insurance

Home warranty programs and home insurance coverage are essentially two sides of the same coin, each offering varying levels of protection against everyday incidents that might harm your home, your belongings, your family, and even other people. 

Like auto insurance, home insurance is often required by your lender or mortgage servicer. While you can shop around for different rates and levels of coverage, many companies ultimately offer similar benefits—not just for your peace of mind, but to ensure their investment is protected. After all, the business of mortgage lending doesn’t come without risk. You might be able to pay back your home loan, but home insurance makes sure you and the property itself are protected in case of emergency. 

Home warranties, however, are not required by lenders. They often cover things that aren’t included by home insurance, including specific repairs and replacements for broken down appliances. There are a lot of home warranty companies out there, all with their own reviews that you’ll absolutely want to read up on before selecting a plan . . . if you decide to select one at all. Remember, they’re not required, but they may be useful if you’re short on cash after purchasing, or if you purchase a home that comes with dated appliances and systems. 

Introduction to home insurance

Home insurance policies protect your home from a list of covered perils and damages. They may also offer liability protection in case someone is hurt on your property or if you cause damage to someone else’s property. Examples could include if a tree branch falls from your yard onto a neighbor’s roof, or if your friend’s kid throws a baseball over your fence and through your neighbor’s window.

Home insurance also protects dwellings (that’s your home’s physical structure and the contents within), detached structures like fences, sheds, and garages, and personal property. That last bit could include your computers, televisions, jewelry pieces, and clothing. Additionally, home insurance protects “loss of use,” which provides financial support in the event that your home becomes unlivable for any period of time, and medical payments for yourself and others. 

Here are some other things insurance might protect you from:

Because home insurance is part of the home buying process, its premium payments can be included as part of your mortgage payment if your lender includes an escrow account (something that’s also often required for FHA loans). In this sense, it becomes part of your PITI, or “Principal, Interest, Taxes, Insurance.”

What’s the cost?

Insurance premiums vary from carrier to carrier, so cost can vary. Oftentimes, it’ll depend on several factors, including:

  • Where you live
  • Your home’s value
  • Dwelling size
  • Structure age
  • Coverage limits and deductibles
  • Home features
  • Credit score
  • Pets

Pets? Yep, even pets. If you’re a dog lover (aren’t we all?), your insurance carrier may increase your premiums for owning a breed they deem riskier than others. Likewise, other “risky” elements—such as swimming pools—may increase your premiums as well. 

What is a home warranty?

Home warranties differ from home insurance options in that they generally cover specific things, not the broader brush strokes of homeownership. 

Think about it this way: if insurance covers your entire home, warranties cover the individual bits inside—things like appliances, HVAC systems, plumbing and septic systems, roofs, and even swimming pools (at an additional cost, of course). 

Like home insurance, home warranties are paid via premiums. You enroll in a plan and you pay an annual or monthly fee for the ability to submit a claim if something breaks down. If your furnace dies out in the middle of winter, you can file a claim to the warranty company. They work with local partners and will dispatch a business to diagnose and repair the issue, up to a certain covered amount. The “secret” there is that you’ll often be required to pay a “service fee” for that service call. 

Think of it as a deductible, right? Similar to home insurance, you have to pay part of the bill up to a certain amount before insurance kicks in to cover the rest. With a home warranty, you pay a small fee for greater coverage—either a repair or replacement of whatever’s broken. 

Warranties aren’t required, and depending on who you ask, they may not even be necessary. For people without access to a lot of liquid cash for immediate repairs, however, they can be particularly useful, especially for a dated home or aging appliances. 

More coverage, more security.

Ultimately, home insurance and a home warranty are two great ways to protect your investment. Neither is free, and neither will totally protect you from risks, but they’re perfect for people who are looking for a little more peace of mind.

You might be able to pay back your home loan, but home insurance makes sure you and the property itself are protected in case of emergency.