You and your partner have decided that home ownership is the route that you want to take. You’ve done your homework and you are aware of the benefits and downsides. You’re ready to make a big commitment.
Now the next step is securing a first time home buyer loan
This step is as (or even more) important than finding the right home to purchase. Listed here are a few crucial things that you need to know about securing a first time home buyer loan.
A quick word on the mortgage market
In the past, it was easy for prospective home buyers to secure a loan. But after the housing crisis, the mortgage crisis has changed immensely, as reflected by today’s mortgage rates. Furthermore, prospective borrowers have to go through several hoops in order to secure a loan.
Requirements for approval
In order to secure a loan, you will need to prepare a few requirements, including a statement of your monthly income, a summary of your debts, your credit score, how much cash you have, and how much you can truly afford.
Preparing the requirements
The first thing that you need to prepare is a statement of your income and debt. Make sure you keep a copy of your pay slip. If you are self-employed or a freelancer, you can use your tax returns as a reference for the lender.
If you have a large outstanding debt like a car or student loan, it is better to pay these off first. Lenders typically limit the amount you can borrow depending on the ratio between your income and your debt.
After hurdling these initial steps, the next thing that you need to do is to get a copy of your credit history and score. Be sure to peruse this document and see whether it is accurate or not.
Ideally, you should have a FICO credit score, or at least 680, in order to be approved for a loan. Otherwise, you may need to find someone who will cosign the loan for you. Better yet, you can make the extra effort to improve your credit score before applying for a loan.
Next, you need to determine how much you can comfortably afford paying. Experts recommend that prospective buyers should pay no more than 35 percent of their gross income.
After this, it is time to compute how much money you can allocate toward the down payment. Typically, prospective buyers have to pay at least 10 percent for the down payment of a property.
Remember that once you have made your computations, you need to stick with your budget no matter how tempting it is to buy a home that has a higher price tag.
Once you have undertaken these steps, you can now go to a mortgage lender to be pre-qualified for a loan.
