First Time Home Buyers
Purchasing your first home can be an exciting but stressful event. There are some very important steps to take before getting into your first mortgage and some important things to take into account to keep your finances in order. Our team has helped countless first-time home buyers with the process and can prepare you for your first mortgage by giving you all of the information you will need to make wise decisions and then guiding you through the process.
Check Your Credit
Your credit score is one of the main things that lenders will look at when you are trying to qualify for a mortgage. The standards can be quite high and your credit score will have a large impact on the cost of the loan. You should check over your reports for mistakes, unpaid accounts or collection accounts. Just because you pay all of your bills on time every month doesn’t mean your credit score will be perfect. The amount of credit you’re using relative to your available credit limit, or your credit utilization ratio, can hurt your credit score. Ideally, a first time home buyer will have a lot of credit available, with less than one third of it used.
Evaluate your Assets and liabilities
Even if you don’t spend too much money and you know that all of your payments are up to date, how you spend your money is important. Are you able to regularly contribute to your savings or are living paycheck to paycheck? A first time home buyer should have a good idea of what they owe and how much they have coming in monthly. It can be helpful to track your spending for a couple of months to see where your money is going and make changes accordingly. You should also have an idea of how lenders will view your income. For example, certain professionals, such as the self-employed or straight-commission salesperson, may have more difficulty in getting a loan than somebody on a salary with a regular paycheck.
When you apply for your mortgage you must provide documents showing your income and taxes. Typically, lenders will request two recent pay stubs, the previous two years’ tax returns and the past 2 months of bank statements. Lenders will look closely for insufficient funds or odd money in or out. Keep your documents organized as buying a home can take a long time and knowing what you need and where to find it can save time when you take that step towards home ownership.
Ideally, you will already know how much you can afford to spend before the mortgage lender tells you how much you qualify for. By looking at your debt-to-income ratio and factoring in a down payment, you will have a good idea of how much house you can afford, both upfront and on a monthly basis. There’s no fixed debt-to-income ratio that lenders require, but there is a traditional amount called the front-end ratio, which dictates that no more than 28% of your gross monthly income should be devoted to housing costs. The back-end ratio represents what portion of income covers all of your monthly debt obligations, which is typically set around 36% or lower but some borrowers will get approved with back-end ratios of 45% or higher.
Figure out your down payment
It will take time and careful effort to build up your down payment but there are also programs that can assist buyers with qualifying incomes and situations. Every state is different but there are typically Federal grants and programs to aid first time home buyers in acquiring sufficient funds for their first downpayment.
Remember, there are many costs associated with home ownership in addition to your mortgage and downpayment. You will end up having to cover closing costs, property taxes, lawyer fees, HOA, homeowner’s insurance, etc. Speak with us when you’re ready to start the process and you will be completely prepared for your first home! Get in touch with Team Barber today!
Toms River first time home buyer mortgage