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
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.
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.
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.
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.
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.
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.
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
Information Needed for your Loan Application:
Factors in Credit Scoring: