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 at the onset.
Take these 5 steps to help make the process go more smoothly.
The homebuyer’s credit score is among the most important factors when it comes to qualifying for a loan these days.
To get a sense of where your credit stands, go to one of the free credit report sites. Just remember that the credit score from these sites will differ from your mortgage credit report. Mortgage credit scores have a slightly different scoring system.
Once you have your report, scour for mistakes, unpaid accounts or collection accounts.
Just because you pay everything on time every month doesn’t mean your credit is stellar, however. 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. Begin the process at least 6 months before shopping for a home. If you prefer to have a professional help you, contact our affiliated partner, Credit Brain (877) 949-1237 for a free consultation.
A first-time homebuyer should have a good idea of what is owed and what is coming in. Once in your home, you want to be financially comfortable to completely enjoy the homeownership experience.
Additionally, buyers should have an idea of how lenders will view their income, and that requires becoming familiar with the basics of mortgage loans.
For instance, some professionals, such as the self-employed or straight-commission salesperson, may have a more difficult time getting a loan than others.
When applying for mortgages, homebuyers must document income and taxes.
Typically, mortgage lenders will request 2 recent pay stubs, the previous 2 years’ W-2s, tax returns and the past 2 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.
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. Key One Capital Capital Mortgage Corporation can help you to take any “guess-work” out of the equation.
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 with compensating factors.
It takes effort to scrape together the down payment. Speak to a Key One Capital Mortgage Corporation professional to help learn about down payment options. Typically, the more money you have to put down, the less your loan cost.