5 STEPS MONEY MOVES FOR FIRST TIME HOME BUYERS
5 ESSENTIAL MONEY MOVES FOR FIRST-TIME HOMEBUYERS
You’ve decided to go for it. You know rates are at attractive lows.
Buying a home can be thrilling and nerve-wracking at the same time, especially for a first-time homebuyer — it’s difficult to know exactly what to expect. The learning curve can be steep, but most of the issues can be resolved by doing a little financial homework.
Take these five steps to help make the process go more smoothly.
1. Check your credit
The homebuyer’s credit score is among the most important factors when it comes to qualifying for a loan these days. In addition, the standards are higher in terms of what score you need and how it affects the cost of the loan.
Scour the reports for mistakes, unpaid accounts or collection accounts.
Just because you pay everything on time every month doesn’t mean your credit is stellar. The amount of credit you’re using relative to your available credit limit, or your credit utilization ratio, can sink a credit score.
The lower the utilization rate, the higher your score will be. Ideally, first-time homebuyers would have a lot of credit available, with less than a third of it used.
Repairing damaged credit takes time — and money, if you owe more than lenders would prefer to see relative to your income. If you think your credit may need work, begin the repair process at least six months before shopping for a home.
2. Evaluate assets and liabilities
So you don’t owe too much money and your payments are up to date. But how do you spend your money? Do you have piles of money left over every month, or are you on a shoestring budget?
A first-time homebuyer should have a good idea of what is owed and what is coming in.
First-time homebuyer should do everything right by tracking spending for a couple of months to see where their money was going.
Additionally, buyers should have an idea of how lenders will view their income, and that requires becoming familiar with the basics of mortgage lending.
For instance, some professionals, such as the self-employed or straight-commission salesperson, may have a more difficult time getting a loan than others.
3. Organize documents
When applying for mortgages, homebuyers must document income and taxes.
Typically, mortgage lenders will request two recent pay stubs, the previous two years’ W-2s, tax returns and the past two months of bank statements — every page, even the blank ones.
Buying a home can take a long time, but knowing what you need and where to find it can save time when you’re ready.
4. Qualify yourself
Ideally, as a first-time homebuyer, you already know how much you can afford to spend before the mortgage lender tells you how much you qualify for.
By calculating debt-to-income ratio and factoring in a down payment, you will have a good idea of what you can afford, both upfront and monthly.
Though there’s not a fixed debt-to-income ratio that lenders require, the old standard dictates that no more than 28 percent of your gross monthly income be devoted to housing costs. This percentage is called the front-end ratio.
The back-end ratio shows what portion of income covers all monthly debt obligations. Lenders prefer the back-end ratio to be 36 percent or less, but some borrowers get approved with back-end ratios of 45 percent or higher.
5. Figure out your down payment
It takes the effort to scrape together the down payment. There are programs that can assist buyers with qualifying incomes and situations.
There are assistance loans for $10,000, which are interest- and payment-free, and forgivable after five years. Although considered a loan, they’re more like grants. Other programs can provide up to $40,000 interest-free.
Each state is different, but most of this money comes from the HOME Investment Partnership Program, which is a federal block grant to create affordable housing.
Finally, speak with mortgage lenders when you’re starting the process. Check with friends, co-workers, and neighbors to find out which lenders they enjoyed working with and ask them questions about the process and what other steps first-time homebuyers should take.
For more information or to make an appointment please call 786.505.4553 Mi Casa Team HOTLINE.