4 Major Tips for The First Time Home Buyer:
By: Mark Harrington
Buying a home can be exciting and nerve wracking at the same time, especially for the first time home buyer. You just don’t know what to expect, but most of the issues can be resolved by doing a little homework.
1.) Audit your Credit
Your credit score is among the most important factors when it comes to qualifying for a loan these days. At Horizon Home Mortgage, LLC we offer all our clients a comprehensive review of their credit report. Together we will check the reports for mistakes, unpaid accounts or collection accounts. This helps our clients understand how credit works, which in turn helps them better their own credit.
Repairing damaged credit takes time and money. If you think your credit may need some fixing, you need to start this process well in advance of looking at homes. Sometimes as much as 6-12 months before shopping for your home.
2.) Assets and Liabilities:
How do you spend your money? Do you have excess money left over every month, or are you on a shoestring budget? A first time home buyer should have a good idea of what he/she owes and what is coming in from their jobs/income. It’s a good idea to track your spending for a couple of months to see where the money is going. This will help you put a plan together to save money for your down payment and closing costs.
Additionally, many first time home buyers will get Gift Funds from a family member and there are still some 100% mortgage options available.
When applying for your mortgage you will need to document income and assets. Typically, mortgage lenders will request 2-4 recent pay stubs, the previous 2 years W2’s, tax returns and the most recent 2 months of bank statements.
Finding a home can take a long time, but knowing what you need and where to find it can save time when you've found your home.
4.) Pre-Qualify Yourself:
Ideally, you already know how much you can afford to spend before the Lender tells you (be realistic here). But, by calculating your debt-to-income ratio you will have a good idea of what you can afford monthly. A good rule of thumb would be no more than 35% of your gross monthly income be devoted to your monthly mortgage payment (include principal, interest, taxes, insurance, PMI, and condo fees). This percentage is called the front-end ratio.
The back-end ratio covers all monthly debt obligations plus the proposed mortgage payment above. Lenders prefer the back-end ratio to be 43% or less, but some borrowers get approved with back-end ratios of 45% to 55%r. To calculate this ratio, add up all your minimum monthly payments (credit cards, auto loans, student loans, etc.) then add the mortgage payment and divide it by your gross monthly income.
Want to learn the basics of mortgages? Read our “Mortgage Basics” series of articles.