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First-Time Homebuyer’s Guide

Are you a first-time homebuyer in Phoenix? Buying your first home is an exciting experience and one of the most important financial decisions you’ll make in your lifetime. There are several benefits to being a new homebuyer that can maximize your finances for tax purposes or long-term savings goals. We’ll provide you with a few tips about the buying process from our new homeowner guide before you meet with a real estate agent in Phoenix. 

Who is Considered a First-Time Home Buyer? 

Anyone who has never owned residential property before would be considered a first time home buyer in Phoenix. This simple definition can be applied to anyone who has only owned property under specific circumstances. No matter where you fit within these guidelines, you’ll find favor with the IRS with penalty-free IRA distributions and qualifications for FHA or Federal Housing Authority loans. There are additional specifications for each financial benefit, including: 
  • FHA – When looking to secure an FHA mortgage, a first time home buyer in Arizona would be anyone who has not bought a home in the past three years. The Department of Housing and Urban Development oversees the FHA and has determined additional first time home buying qualifications that you may fit into: 
  • Single parent – A single parent can be considered a first time home buyer in Arizona if the only home they’ve ever owned was with a previous spouse while married.
  • Displaced homemaker – Any displaced homemaker who previously owned a home with a spouse would be considered a first time home buyer. 
  • Structural – There are additional qualifications that relate to the actual structure of a previously owned home. If an individual owned a previous home that was not permanently affixed to a permanent foundation in compliance with applicable regulations, it would be considered first-time homeownership. Any individual who owned property that was not in compliance with state, local, or model building codes and that can not be brought into compliance for less than the cost of a new permanent structure is considered a first-time homebuyer. 
  • IRA – To be considered a first time home buyer when using an early IRA withdrawal without penalties, you or a spouse should not have owned a home in the last two years. The date you sign a contract to buy a property is called the “date of acquisition.” So any residential property that is acquired should be the first by the date of acquisition. 

Home Buying Basics for Early IRA Withdrawals

Typically, withdrawing money from a traditional IRA before the age of 59 ½ is discouraged because you can incur a 10% tax penalty. One of the exceptions to this rule is the purchase of a home as a first time home buyer in Arizona. Another benefit of using the IRA account is that the funds can be applied to other aspects of the buying process like financing, settlement, or closing costs. This must be done before the close of the 120th day after making the withdrawal. Other qualifications for the use of an early IRA withdrawal include: 
  • Family – Another great aspect of using an early withdrawal from an IRA account is the ability to help others in your family purchase their own homes. This may include a spouse, child, grandchild, a spouse’s child or grandchild, you or your spouse’s parent, or another ancestor. 
  • Maximum – All first time home buyer withdrawals are limited to $10,000 from a traditional IRA account. If you are married, your spouse can withdraw $10,000 as well. 
  • Roth IRA – A Roth IRA account allows you to withdraw any amount before the age of 59½ without a tax penalty. Since there are no 10,000 limits on withdrawals, you’ll receive a 10% tax on withdrawals that are more than you originally invested because these would be considered gains. 

Home Buying Basics for FHA Loans

FHA loans are obtained through banks and backed by the federal government. These loans are meant to help homeowners secure residential mortgages with more lenient terms. You can put down as little as 3.5% of the purchase price as a down payment with a credit score of at least 580. This percentage increases if your credit score is lower, although most banks won’t be willing to fund the loan. If you need additional funding for the down payment, a friend or family member can help you with the down payment as a gift with no requirement of paying it back. There are certain requirements of FHA borrowers, including: 
  • Mortgage insurance – All borrowers who secure FHA financing must carry mortgage insurance with between 0.8% and 1.05% of the loan annually. 
  • House counseling – Any first time home buyer in Phoenix is required to attend HUD-approved house counseling courses. 
It’s important to remember that FHA offers many state assistance programs that may have their own specifications for the maximum amount that can be borrowed. It may differ from county to county. You’ll want to partner with an informed real estate agent in Phoenix who can provide guidance on how to take advantage of these programs. They should also be very knowledgeable of the buying process in general. 

A Program for a First Time Home Buyer in Arizona

A special program for any first time home buyer in Arizona is available through the HOME+PLUS Home Buyer Down Payment Assistance Program. It is administered by the Arizona Industrial Development Authority and gives homeowners a 30-year fixed-rate mortgage with up to 5% down payment assistance. This is especially helpful for anyone facing challenges saving up to 20% on a traditional home loan. Here’s how to qualify for this program: 
  • Income and credit – All borrowers must have an annual income of at least $112,785 with a credit score of 640. 
  • Mortgage insurance – You’ll be required to carry mortgage insurance but will be offered a discounted rate on conventional loans. 
  • Education – At least one of the borrowers must complete the homebuyer education course before closing. The down payment assistance can only be applied to a HOME+PLUS mortgage. 
This program is available in every county in Arizona and is meant to eliminate hurdles for homebuyers. The assistance can be applied towards the down payment, closing costs, or a combination of the two. 

Mortgage Insurance and the Home Buying Process

Mortgage insurance can make the home buying process easier for a first time home buyer in Phoenix by lowering your lending risk. Lenders may be more willing to overlook a low credit score or smaller down payment. It can give you more buying power since it can lower the down payment requirement if you are short on funds upfront. Other home-buying basics for mortgage insurance are:
  • Monthly payment – Your monthly mortgage payment will increase. 
  • Closing costs – Your closing costs may increase.
  • No protection – There is no protection for the borrower.
  • Not tax-deductible – Premiums are usually not tax-deductible, but recent legislation has extended the ability to deduct PMI from your taxes. 

The Best Real Estate Agent in Phoenix

Jeff Barchi is an award-winning real estate agent in Phoenix but has helped first-time homebuyers all over the country. With over 20 years of experience in the industry, Jeff Barchi is in the US’s top 1% of real estate agent. His expertise continues to generate unparalleled statistics that benefit new home buyers!
Call the Jeff Barchi team today to discuss how we can help you buy a home in Arizona!

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I excel in delivering personalized service, meticulous attention to detail, and transparent, timely communication. When you choose a Realtor, it's not just about receiving generic property listings or gaining access to a property. It's about entrusting an expert to guide and safeguard you through one of life's significant financial decisions. Whether you're buying or selling, my approach is dedicated to ensuring your satisfaction and peace of mind. For buyers, I go beyond the ordinary by personally reviewing each home before sending you information. I identify fundamental resale flaws, spot red flags, address pricing concerns, and highlight details that most buyers might overlook. During property visits, I provide a comprehensive overview, pointing out both the positive and negative aspects to give you a realistic perspective. For sellers, I offer an honest assessment of your property's value and provide clear insights on how to enhance our position. My goal is to minimize potential objections from buyers, maximizing your property's appeal with cost-effective strategies. Contact me to make your buying or selling journey a success.

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