Financing Your First Home
Potential homebuyers wanting to jump into the purchase market will of necessity have to go through the process of financing their home mortgage. There are certain steps that can be taken to assist the buyer in that finance process.
The first real step will essentially be a self-evaluation of your own financial picture. You know better than anyone what your overall monthly expenses are currently, or what you can truly afford relative to any monthly mortgage payment.
Your monthly housing expenses will include the monthly loan principal and interest along with any home or hazard insurance. Escrow costs, property taxes and any potential homeowners association fees will also need to be factored in.
Of course you don’t know what these costs are ahead of time, it’s just that once you determine what fits your monthly budget understand that you need to be firm with any lender that the monthly mortgage payment, and all attendant costs, must fit into that figure. Don’t go beyond what you can comfortably afford. Don’t let a lender or realtor push you past your determined budget.
Do not under any circumstances go out and purchase any high-ticket items, such as a new car or furniture, on credit prior to securing a home loan. You want your credit and financial profile to be as appealing as possible. Purchases like these can eschew your credit and financial picture enough that you may not be able to qualify for that loan.
Because lenders today want to see a total debt-to-income ratio of less than 40 percent, you may have to pay down debt. Pay down those credit cards. Ideally you want your credit card debt on any given card to be no more than 30 percent of available credit. This will optimize and improve your credit score.
Talk to a credit counselor that is not tied into any lender if needed. Attend a first-time buyers seminar. The U.S. Department of Housing and Urban Development (HUD) offers free housing counseling and seminars. HUD also offers free brochures on home financing and closing costs.
Visit a qualified lending professional, and do so before seeing a realtor, get pre-qualified for a loan based upon your full financial picture. This makes the home shopping process easier because you present a picture of being a serious and qualified buyer.