Housing Assistance: Advice For First Time Home Buyers

Going through the home buying process can be hard, especially if you have never done it before. There are many things that must be taken into consideration before purchasing a home.

There are also several home buying terms and procedures that you must familiarize yourself with before searching for a home. Because of this, it is imperative that you do some research and find all of the advice that you can on the subject. You may not need to use all of the advice given, but these tips will provide you with a great point of reference and will help you go into the home buying process with at least a little bit of knowledge. For more information on how to determine how much you can afford to spend, what to do before you buy a house, what documents you need and more, refer to the sections below.

Determining Your Mortgage Amount

The first thing that you should do when searching for a home is determine how much you can spend. Your mortgage lender will use a qualification ratio to decide how much they will lend you. There are three rules that you should follow when determining how much you can afford.

The first rule has to do with your mortgage payment. The rule states that your maximum monthly payment should not be more than 28 percent of your monthly income. Your gross monthly income can be used to determine this amount. The second rule has to do with the costs associated with your total housing. This includes your mortgage, homeowner’s insurance, association fees, property taxes and more. The total cost of all of these things should not be more than 32 percent of your monthly income before taxes are taken out.

The final rule deals with your monthly debt payments. This involves all of your debt, including your housing payment, auto payments, student loans and more. This should not be more than 40 percent of your total gross monthly income. This means that if you have a lot of debt or big payments that must go to certain things, you will not be able to afford a high mortgage payment. In some cases, banks will not even approve you for a mortgage until some of your other debt is cleared.

Before You Buy a House

There are certain things that you should do to prepare to buy a house. Of course, one of those things is to save. However, when you are saving to purchase a home, do not forget about the down payment. Most down payments are at least 20 percent of the price of the house. If you cannot afford to pay 20 percent of the home’s price for the down payment, then you will most likely end up with a worse deal. Once you determine what the down payment would be for homes in your price range, you should then determine what your time frame will be. For instance, if you want to purchase a home in five years, then you will need to save that amount of money within that time frame. So, in this scenario if you wanted to buy a home with a down payment of $50,000 then you would need to save $10,000 a year to be able to afford it at the end of the five-year mark.

While doing this, you should check your credit. Obtaining a good mortgage will require a good credit score. To ensure that your credit score is in order, you should check your score regularly, as credit reports can sometimes show errors. A good way to improve your credit score quickly is to pay off some of the balances on your credit cards and then stop using them for at least two months before you apply for a mortgage. Do not apply for any new credit cards or loans until after you have already closed on the home.

Remember that if you are buying the home with another person, mortgage lenders will consider the other person’s credit as well. You may still be able to purchase the home if your partner’s credit score is not as good as yours is, but the process may be a bit more difficult. Because of this, you should talk to your partner about their credit score before you decide to buy a home together.

Have Everything Ready

Some housing markets are very competitive. Because of this, you should begin to gather the documents that you will need before you find the home that you want. For instance, for the mortgage application alone, you will have to bring proof of your income. This can be done with paystubs, W-2 forms, bank statements and more. If you are a freelancer or are self-employed, then you will need to show proof of that as well.

Compare Mortgages

Finding a good mortgage deal is key to affording a home. The first thing that you should do is get pre-approval for a mortgage. This way, if you find a home that you love, you can put in an offer immediately and do not have to wait for mortgage approval. Many times, this is the difference between moving into your dream home and having someone else beat you to the purchase.

In addition to getting pre-approval, you should compare mortgages. There are several different types of mortgages you can use to finance your home. There are fixed-rate mortgages and adjustable rate mortgages. You may be able to qualify for special federal assistance for first-time homebuyers. The length of time that you take out the mortgage can also vary. Keep in mind that interest rates are usually higher for longer-term loans. While 30-year fixed rate mortgages are the most common types of loans that are taken out, you should still look at other fixed-rate mortgages as well. A great way to do this is to use an online mortgage calculator to determine how the different terms of mortgages and interests will affect your payments.

Decide What You Want

Before you begin to look for a house, you should know the basics of what you want. When determining what kind of house you want, there are a lot of factors that you should consider. How many people will be living in the house with you? Do you plan on having a child? All of these are things that should be considered. You should make a checklist with all of the things that you want and a few things that are negotiable. For example, a certain number of rooms in the home is a need, but a pool in the backyard is a want. Staying flexible on certain aspects of your home will keep your options open. However, having specifics will help you narrow down your housing search. Following this advice will help ensure that your home buying experience goes as smoothly as possible.

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