Let's say you want to buy a little love nest where you can raise your children and live the good life. This may seem both an ideal situation plus very romantic, but first you will need to sit down and discuss just how you plan on buying this dream home. We will discuss this in the article.
There are certain parameters that must be met before you can invest in a new home. Today's market is an unsteady one, and excellent credit is a must. The current market also brings out the predators and unethical lenders whose only desire is to take your money and run. We wish to avoid this. First and foremost is excellent credit.
Ethical lenders dictate that your debt to gross income ratio is at the minimum of 28/36%. The lender considers 28% to be the maximum amount of your gross monthly income that the lender allows for monthly mortgage payments. This includes mortgage payment plus interest, private mortgage insurance if required, property taxes, and any other home related expense, such as homeowner association fees. The second number, 36%, indicates the percentage of gross income that the lender will allow for housing expense and recurring debt. (Think utilities and phone, cable, telephone here.)
Let's look at an example. Say your gross yearly income is $35,000. Gross yearly income divided by 12 = $2916.00 per month income. Multiply this by .28 to get the first figure of $816.00. Now, multiply gross monthly income of $2916 by.36 to derive the sum of $1,050.00. Thus, you debt to income ration would be $816/$1,050. This is what the lender will look at.
First, get a current credit report. These are free, and there are several companies, such as Experian, Equifax, and TransUnion that will provide you with needed information. AnnualCreditReport.com claims to be the official site for consumer credit reports, and is as good a place as any to start. Lenders generally base your credit score on the design of Fair Isaac Corporation (FICO) to make their decisions. If you check online and determine your credit score is above 720, then you are an excellent candidate for a loan. 620 to 650 is considered a good risk, while a credit score of 620 or below is considered to be sub prime. Don't go there.
If thus far things have checked out well for you, then you can begin the process of purchasing a home.
The best bet for first time buyers is to find a real estate agent that will work well with you. Ask family, friends and neighbors who they would recommend. An ethical real estate agent will get the job done for you hands down if they know the business. Don't be afraid to interview a real estate agent to help you determine who is best. An ethical real estate agent will relish your questions, and answer truthfully. If gut instinct tells you that something isn't quite right, you are probably correct.
The next step in the process is to find a quality lender. Never take the first one you come across. Become acquainted with at least four lenders in your area, and ask them any questions you may have about buying a home and home ownership. The ethical ones are always willing to help.
At this time, if you have determined that you qualify for a home purchase, you know your credit score is acceptable, and your debt to income ration qualifies you, it is to your advantage to pre-qualify for a loan. This process quickly expedites the home buying process, because you know exactly what you qualify for when making an offer on a home. It also signals to the seller that you are serious about an offer, and are ready to buy. There are many online calculators that can help you understand the process and help you determine if you can pre qualify. It generally takes very little time, and shows you are a determined borrower.
When you have these things in place, it is time to look for a home. Always look at homes that you can both afford and that may be a bit overpriced. There is always the possibility that the higher priced home has been on the market for a long time and the owner is anxious to sell.
Make an offer on a home you really would like to own. Be sure to pick one that has a good layout, is not in need of immediate repair, and is in the location you desire. Never settle for second best. Take your time looking for the best value and investment for you and your family.
Following these simple guidelines will go a long way in helping you buy your first home. If you feel you are not ready or don't qualify just yet, then consider renting for a time period to either increase your credit score, or save for the down payment on your big dream home.
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