Purchasing a home for the very first time may be time-consuming and challenging. To assist you in navigating the twists and turns that are involved in purchasing your first home, we have put together the following first-time homebuyer tips that demystify the process.

 

Figure out how much home you’re able to afford

The first step in the process of homebuying is determining how much home you can afford based upon your annual income and expected amount of the down payment. Use an online mortgage calculator to receive an estimate of the house price which fits your budget.

Begin to save up for a down payment

 

Mortgage lenders like homebuyers to have a bit of skin in the game, which is the reason why the down payment is critical. It’s possible to place as little as 3 percent down on a house, yet the more you place down, the better terms and interest rate you will receive. Additionally, you will shrink the size of your mortgage and have more home equity.

Also, set aside funds for closing costs, which may range from 2 percent to 6 percent of the loan amount. Closing costs involve lender charges and 3rd-party fees like recording and title insurance fees, as well as an appraisal. Do not fully drain your savings in order to cover the closing costs and down payment. Keep a bit of cushion available for emergencies, repairs, and home maintenance.

Improve finances

Your credit rating is an important factor to be eligible for a mortgage, and it will help determine the mortgage interest rate. Purchasers who have credit scores of 740 and up usually receive the best mortgage rates; therefore, improve your credit rating as much as you can before you apply for a mortgage.

To be eligible for a conventional mortgage, you will require at least a 620 credit rating. Government-backed mortgages from the FHA (Federal Housing Administration), have minimum required credit scores of 500, yet required minimum down payments jump to 10 percent. If your credit rating is at least 580, it’s possible to obtain an FHA loan with just 3.5 percent down.

Also, lenders care about the relationship between your income and outstanding debt. The ideal DTI (debt-to-income) ratio, which involves the percentage of your gross month-to-month income that is used to pay back debt, is 43 percent or lower. One other useful first-time buyer tip: Try to pay down debt before you apply for a mortgage, if you can.

Understanding the importance of PITI

 

Mortgage payments involve more than merely the interest and principal part you will owe on the loan every month. There are 4 PITI components:

• Principal
• Interest
• Taxes
• Insurance

Insurance and taxes portion of the mortgage payment refer to the homeowner’s insurance premiums and annual property taxes. A mortgage calculator will provide an estimate of what the monthly mortgage payment might appear like with all those elements included.

If you place less than 20% down toward the home purchase, you also will be responsible for private mortgage insurance, which will be added to the mortgage payments. Finally, budget for homeowner’s association charges if you reside in a community that has an HOA.

Be preapproved

Before you fall in love with a house you cannot afford, obtain a mortgage preapproval. Preapprovals involve lenders reviewing all overall financial pictures, pulling credit and offering an estimated interest rate and loan amount. But, being preapproved for a specific loan amount does not mean you ought to borrow to the max. Instead you should determine if your monthly mortgage payment fits your budget given additional bills while you consider a home’s cost.

When you have your preapproval, one important first-time homebuyer tip to take includes shopping around with several lenders. Comparison shopping for the ideal mortgage rate alone may save you thousands of dollars over the life of a loan. In addition, compare lender charges and overall price of borrowing listed on the loan estimate to make sure you are receiving the best deal. Consider both large and small banks, in addition to nonbank lenders and mortgage brokers.

Consider all mortgage options

In addition to FHA and conventional loans, there are many types of mortgages, which include loans from the VA (United States Department of Veterans Affairs) and USDA  (United States Department of Agriculture), neither of which will require a down payment. A VA loan is reserved for military personnel, vets and qualified spouses, whereby a USDA loan caters to a low- and moderate-income homebuyer searching for a property within a designated rural locality.

There also are available first-time homebuyer programs, in addition to closing costs and down payment assistance. Check with the housing finance agency in your area for more details regarding the programs it provides.

Locate a real estate agent

Real estate agent’s roles include guiding you through the home buying process. Get recommendations for real estate agents from colleagues, friends, and family members. Ask questions to determine each real estate agent’s knowledge of the housing market in your area, and do not be afraid to negotiate their commission charge. See reviews online to check what past customers said about their experiences, as well as interview at least 3 different real estate agents.

Select the right house

A lot of first-time homebuyers choose a starter home that is older, cheaper than newer houses and might even need a bit of work. Remember the house which tick off your wish list items might not fall inside your budget. It is vital that you stick with your budget in order to avoid purchasing more home than you’re able to afford.

Think above and beyond the features of the house and concentrate on the community’s school quality, crime, amenities, commute time to local attractions and work. Your agent may set you up to get email alerts from the Multiple Listing Service in your area for houses that match your criteria. You also can use a real estate search portal online to narrow your home search down.

Make strong offer

When you have located “the one,” it is time to make your offer. In a competitive market, you may think about offering more than their asking price or limiting contingencies. If houses are remaining on the market longer than normal, you might have more negotiating power. Below we list some ways to make an offer stand out:

• Communicate often and act quickly.
• Create a personalized buyer letter that explains why you like the house.
• Make sure to include the earnest money deposit and mortgage preapproval letter.
• In writing, spell out the closing date.
• Include all contingencies which will provide you the choice to walk away later on.
• Make a competitive offer.

 

Keep status quo in your finances

As a first-time homebuyer, one of the worst things to do is add more debt or change your income before the closing day. During the process of underwriting, lenders check those items again before the closing, and any changes potentially could derail or delay the final approval of your loan. To keep the approval of your loan on track:

• Do not apply for a line of credit, loan, or new credit card.
• Do not close or cancel any accounts.
• Do not quit your existing job or change jobs until after you close.
• Immediately respond to all documentation requests from the lender.

Get ready for closing day

After you have signed the purchase agreement, it’s possible to schedule an inspection, which offers a complete evaluation of the condition of your home. The lender also will order a home appraisal, determining the current market value of the house. If an appraisal is too low, you will have to negotiate with a seller on a lower cost or come up with the difference out of your own pocket. You will be good to go if your appraisal comes in above or at the sales price. Below are a few last first-time homebuyer tips you should follow before the closing date:

• Confirm with your closing agent how you will pay the closing costs and down payment.
• Do a final walk-through of the house and point all issues out that require instant attention.
• Compare loan estimate to closing disclosure to look for any closing cost changes or errors.
• Show up on the closing date to sign documents, pay the funds owed and get the keys.

Home Loans for Those who Have Bad Credit

Don’t know if you qualify to buy a home because of bad credit? Here are some tips for applying for a loan with poor credit:

Put a larger down payment down

If you do not have good credit, saving for a down payment goes a long way in getting you approved. It shows your lender that you’re able to place money toward the loan.

Regarding how to save for your down payment, making a budget to figure out ways to slash expenses or doing a side hustle to produce more income are great solutions. Beyond those, seeking the assistance of savings apps, like Qapital or Digit, may assist you in putting funds away by transferring tiny amounts of money into a savings account at consistent intervals. Plus, if you have family members who might be willing to help, it’s possible to always ask them to gift you funds toward the down payment.

 

Speak with a credit counselor

Occasionally the best thing to do to repair your credit is to speak with a professional. A credit counselor assesses the details of your present financial situation and provides personalized recommendations about how to improve your rating.

But not all counselors are created equal. You will want to work with somebody who has been approved by HUD (United States Department of Housing & Urban Development). It’s possible to locate an approved housing counseling agency in your area by using HUD’s search tool online or through Consumer Financial Protection Bureau.

Take a good look at dispute charges and credit reports

Credit bureaus put together details regarding the credit habits of millions of individuals, and periodically inaccurate details may show up on your report. Take some initiative to ask for a copy of your report and check it for errors. If you see any, follow this process here to submit a dispute and have the error taken off of your credit report.

 

Lower DTI and pay down debt

A factor that lenders look at while determining to approve you for a loan is your DTI (debt-to-income) ratio. Your debt-to-income can be calculated by dividing your overall debt, which includes the payment on your house, by your gross month-to-month income. When you are searching to purchase a house, try to shoot for a ratio that is no higher than 43 percent.

If you use the calculations and see that your DTI ratio is greater than it should be, do not be concerned; there are measures to take to improve it. One way includes working on paying your debts down. One other way includes increasing your income. Either way will improve your debt-to-income ratio.

Concentrate on a record of timely payments

Automated underwriting systems frown on recent late payments. If there is a history of late payments, you might want to wait at least 4 – 5 months before you apply for a mortgage in order to minimize the impact.

Meanwhile, try to make a track record of timely payments by always paying your credit card bills in a timely manner.

In summary

Getting a loan when you have poor credit might be a challenge, yet it may be done. You might expect a higher monthly payment and interest rate, yet if you have conducted your research to figure out which loan programs are better suited for you, taken measures to improve your credit as much as you can before you apply and are working with lenders who have experience helping the ones who have less-than-stellar credit, you still can be a successful homeowner.

The best mortgage brokers from Houston can help you save on closing costs and find optimal interest rates. Contact Champions Mortgage in Sugar Land, Texas at (281) 727-2500 today for more details.