Now that the pleasant weather brought about by spring has finally arrived many of you may be contemplating the purchase of your first home. Purchasing your first home is very exciting and may very well be the largest purchase you’ll ever make. However, the enormity of buying a home and the complexities involved with the purchase process can at times be stressful and overwhelming. So what can you do to help increase your knowledge of the process and ease the stress of the key decisions to be made? For starters you should connect with a qualified mortgage professional and realtor to ensure that you are well-informed and educated about the home buying process from the outset. It will also be advantageous to have a solid understanding of what’s involved with securing financing for your new home. Four of the most important concepts to familiarize yourself with are as follows:
▸ Credit:The ability to demonstrate that you have a history of making timely payments is crucial. If you don’t know your credit score it’s important that you find out what it is and what is on your credit that may be influencing it in a derogatory fashion. The credit score necessary to qualify for a particular program depends on several factors but the rule of thumb is you must have at least a 620. Knowing your score and what influences it is a key starting point toward purchasing your first house.
▸ Down Payment:Do you have money for a down payment? If so, how much is it? Some programs require at least 3% down (i.e. HomeReady or standard conventional financing) and others require no down payment (such as the USDA and VA loan programs). Your ability to put money down will help determine your options for financing and as such the nuances of program requirements (i.e. debt-to-income ratio, credit score, loan amount, interest rate, etc.)
▸ Debt-to-Income (DTI):DTI is a simple comparison between your monthly payment obligations and your gross monthly income. Certain monthly obligations are excluded from the analysis (i.e. utility bills, health insurance, 401K, union dues, etc.). Other items are included (i.e. student loan payments, auto loans, credit cards, child support, alimony, etc.) DTI requirements vary by loan program (conventional loans have stricter DTI requirements than government programs, for example) and a qualified mortgage professional can help you understand the specifics for your particular situation.
▸ Employment and Income:Most loan programs require borrowers to have stable employment and income. From the lender’s perspective the term “stable” simply means that your income is likely to continue for at least 3 years following the closing of your loan. How do we determine this? Some of the more pertinent factors we look at include the profession you are in, how long you have been with your current employer and whether or not you’ve had any recent gaps in employment. For instance, the employment history of someone who’s been employed by the same company for the last 5 years will be viewed more favorably than that of someone who’s only been at their current employer for 2 months, was at their previous employer for 4 months, had an employment gap of 45 days prior to that, only worked for the employer previous to that for six months, so on and so forth. Having stable and consistent income is certainly a plus in qualifying for your first home.
As usual I hope this post helps prepare you to march down the path of homeownership. It’s not as complicated as it appears and getting with a qualified lender and realtor is the first step in ensuring a smooth and efficient process!
Thanks as always for reading!