Buying a home can be a nerve-wracking process, especially for first-time homebuyers. There is so much to learn about real estate and mortgages, it can be overwhelming.
So, here is some basic information first-time homebuyers should know that will make the process of buying a home much easier.
First, buyers should make sure they have a good credit score, which is important to qualify for a mortgage and buy a home.
Some things homebuyers can do to improve their credit score are:
- Correct mistakes on their credit report.
- Effectively use credit to build their credit rating.
- Limit applying for new credit.
- Keep balances low relative to credit limits.
- Don’t close old, unused credit accounts.
- Make sure bills are paid on time.
Down Payment and Closing Costs
In addition to improving your credit score, have enough money on hand to make a down payment and pay closing costs.
In most cases, you will need a down payment to purchase a home. When you meet with your mortgage loan originator for the first time, you will learn how much you need to save for a down payment and closing costs, and also how much you can afford to spend to purchase a home.
Ways you can save for a down payment and closing costs include:
- Budget your finances and keep records.
- Conserve on utilities, transportation, and other expenses.
- Commit to couponing.
- Limit credit card usage.
Related: What type of closing costs should you expect to see when buying or refinancing a home?
Barriers to Qualifying for a Mortgage
Again, your credit score is likely to be the biggest barrier in securing a loan for your home. Unfortunately, many people don’t monitor their credit report, and don’t find out that there is a problem until applying for a loan. Potential buyers, therefore, should monitor their credit report and correct mistakes immediately, while also working to raise their credit score.
Another barrier to qualifying for a mortgage exists for people who earn commission, are self-employed, or have jobs with a varying pay schedule rather than a set hourly wage or salary (e.g., jobs like truck driving, auto mechanics, etc.). If you have one of these jobs, it’s helpful to consult your mortgage broker very early in the process of buying a home, because it’s more difficult to qualify for a mortgage in these circumstances
Related: How will a job change affect my ability to qualify for a home loan?
Finally, barriers to getting a mortgage may involve issues with the house itself. While a house may seem like your dream home at first, it’s important to have professionals inspect the home to identify any problems with the foundation, plumbing, wiring, or anything else that may need work.
Factors Determining How Much You Can Borrow to Buy a Home
Besides your credit score, the main factor lender will look at is your debt-to-income ratio. To calculate your debt to income ratio, add up all your monthly debt payments (including your estimated monthly debt with your new home) and divide that number by your monthly gross income. You should aim to be at around 36% or lower. However, lenders have varying requirements.
In addition to your debt-to-income ratio, lenders will consider the size of your down payment.
Also, as the loan originator, I like to discuss monthly payment options with borrowers to make sure they are comfortable with the monthly commitment. Borrowers may qualify for more than they feel comfortable paying each month, considering other lifestyle and savings goals.
Related: How Much Can You Afford to Pay for a Home?
When Should You Begin Applying for a Mortgage?
Purchasing a home should not be a spur of the moment decision. When you think about the amount of debt you will incur to purchase a home, it’s not a decision to take lightly. At minimum, potential borrowers should speak to their mortgage loan originator a few months before searching for a home.
By talking with a loan originator beforehand, buyers can set their budget before starting to look for a home.
Marimark Mortgage is based in Tampa, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.
To get started with a mortgage to buy your next home, please fill out our Quick Mortgage Application, or contact us direct.