Elise Greenberg

Your Neighborhood Realtor

Tips for First Time Homebuyers

Tips for First Time Homebuyers


DO YOU HAVE STUDENT LOANS?  If you are a federal direct student loan borrower, a new program went into effect October, 2015. Called REPAYE , it caps payments at 10% of the borrower's monthly income.


Information on Montgomery County Grant Program for First Time Homebuyers 

  • Start by shoring up your credit.

Since you most likely will need to get a mortgage to buy a house, you must make sure your credit history is as clean as possible. A few months before you start house hunting, get copies of your credit report. Make sure the facts are correct, and fix any problems you discover. THE BOTTOM LINE FOR MOST LENDERS TODAY IS A FAIR ISSAC (FICO) SCORE OF 680.

  • Aim for a home you can really afford.

The rule of thumb is that you can buy housing that runs about two-and-one-half times your annual salary. But you'll do better to use one of many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford.

  • Don't worry if you can't put down the usual 20 percent.

There are a variety of public and private lenders who, if you qualify, offer low-interest mortgages that require a down payment as small as 3.5 percent of the purchase price.

  • Buy in a district with good schools.

In most areas, this advice applies even if you don't have school-age children. Reason: When it comes time to sell, you'll learn that strong school districts are a top priority for many home buyers, thus helping to protect property values.

  • Get professional help.

Even though the Internet gives buyers unprecedented access to home listings, it's still a good idea to use an agent. Look for an exclusive buyer agent, if possible, who will have your interests at heart and can help you with strategies during the bidding process.

  • Choose carefully between points and rate.

When picking a mortgage, you usually have the option of paying additional points -- a portion of the interest that you pay at closing -- in exchange for a lower interest rate. If you stay in the house for a long time -- say five to seven years or more -- it's usually a better deal to take the points. The lower interest rate will save you more in the long run.

  • Before house hunting, get pre-approved.

Getting pre-approved will you save yourself the grief of looking at houses you can't afford and put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history.

To qualify, the FRONT END RATIO should not exceed between 28-29% (depending on type of loan )of your GROSS monthly income.  Thus, your monthly GROSS income x 28%=ideal loan payment.  Your mortgage payment includes:  principal and interest, one month's taxes, homeowner's insurance, private mortgage insurance and condo or association fees if applicable.  However, the BACK END RATIO should not exceed more than 36% (conventional) to 41% (FHA, VA) to qualify.  The back end ratio includes ALL of your monthly debt-credit cards, school loans, car payment, alimony/child support, etc).  Be sure to consult with a mortgage loan officer to get a better understanding of what you can qualify to buy. 

PITI/Gross Monthly Income =Front -End Ratio

PITI + Monthly Debt / Gross Monthly Income = Back-End Ratio


  • Be sure to get a home inspection.




Ways to obtain a down payment:


Set up an automatic saving plan.


Get a gift from your parents, grandparents, other relatives or friends.


Sell a car, boat, motorcycle, collectibles or other assets.


Liquidate stocks, mutual funds, savings bonds or other investments.


Allocate your income tax refund.


Take a loan from your 401(k) retirement plan and repay yourself with interest.


Withdraw funds from your 401(k) plan, subject to taxes and penalties.


Get a bonus from your employer.


Explore homebuyer programs for public servants, if you qualify.


Apply for a state or local government homebuyer down payment program.


Use a private down-payment assistance program.



Benefits of a down payment:


Borrow less money to buy the same-priced home.


Shop among more lenders, loan originators and loan products.


Get a lower interest rate.


Pay less for mortgage insurance.


Avoid mortgage insurance altogether, if the down payment is at least 20 percent of the purchase price.



Information Needed for your Loan Application:

    • Most recent pay stub showing YTD earnings
    • Last 2 Years W-2 Forms/1099's/Federal Tax Returns (NO DOCS DO NOT EXIST) with all schedules attached
    • Most recent bank/retirement statements (include all pages)
    • Photo ID
    • Employment & Residence History for 2 Years
    • Mortgage, Taxes and Insurance on all properties owned
    • If applicable, separation agreement/divorce decree/support order


Factors in Credit Scoring: 

  • Outstanding credit balances-keep balances low and don't close accounts
  • Length of credit history- opening new credit cards may decrease score
  • Type of credit-a mixture of auto loans, credit cards and mortgage is positive
  • Inquiries-20 inquiries can be made in a 14 day period for auto or mortgage and will be treated as just one inquiry
  • Activity-keep credit cards active
  • Review your credit report and check for accuracy
Pay on time!