First Time Home Buyer
The home buying process can be a bit daunting, so it’s always recommended to seek a knowledgeable professional if you have any questions, or need some advice. With that said, there are some things that any agent will advise you to do before getting to far into the process. The first step is get pre-approved; that is by far the upmost important. Mortgage brokers are independent agents that review your information and shop it around to find you the best rates and loans for your individual situation. This will give you an idea of your limits, the amount of your payments, and much more. By figuring this information out in advance you wont waste time looking at properties that dont conform to your standards and it makes taking the next step is much easier and faster so don’t miss out on your dream home. Preparing to apply for this loan is just as important as applying for it.
The main criteria reviewed
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YOUR JOB - you will need to supply two to three years of W-2s, or two years of profit loss statement for self employed borrowers. Two months of the most recent paystubs and the last two years of your federal tax returns are also needed.
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A LIST OF DEBTS - from credit cards to auto loans, child support to student loans. If you have any on going debt, lenders want to know about it to establish a debt-to-income ratio. They’ll also ask for the two most recent months’ bank statements for review, as well as a list of your assets.
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YOUR FICO SCORE – Your FICO score is not your basic credit score and it is smart to check this at least a month before applying for your loan to correct any errors that may lower your score.
Now that we’ve gone over what’s reviewed, let’s take a moment to talk about how you can make yourself more presentable to a mortgage broker. Starting with the most important: your FICO score and credit score are two different things. Just as Coke and Pepsi are both colas, yet different, so are your credit and FICO score. A FICO score is the same as a regular credit score; it’s just calculated by a company that lenders trust more. As a first time home buyer, this FICO score is more important than a seasoned buyer due to the smaller down payment funds, lack of mortgage payment history, and the benefits the first time home buyers can receive. So checking your FICO score and repairing any marks prior to your loan process will help substantially. A FICO score of 640 or higher is recommended; anything lower will show you as a high risk and leave you with only FHA loan options. Some programs do go as low as 580, but you’ll end up paying for it accordingly. The next way to prepare is by setting up a savings account, and setting funds aside for a down payment. The more you have down, the
more lenders will like to work with you. Most first time home buyer programs require a minimum of 3.5% of the purchase price as a down payment. As a first time home buyer you do have the opportunity of down payment assistance program, these are usually a grant or gift money from the government that usually does not require to be paid back. Making it possible for qualified first time home buyers to get into a new home with very little to no money invested. Even with these opportunities available, think of it as if you were a lender: would you rather lend to someone with none of their own money invested, or would you rather lend to someone who’s personally
invested? So even with all these opportunities available to you, a down payment or personal funds set aside is still recommended and will give you multipule options when home shopping. Lastly, let’s talk about debt. Your debt-to-income ratio pretty much sets the standard on your maximum loan amount. Standard ratios range around 35%, with larger down payments and with better FICO scores the ratios can go up from there. The reverse is true if the situation is switched. If you are able to remove or pay down some of these debts, it will free up credit, and allow for a higher loan limit. This is a summed up version of the mass amount of information first time home buyers have. If you'd like to go over any this, need more details, or would like some lender recommendations contact me directly id gladly help you prepare for this process or take that next step!