There is a first time for everything, and it is usually exciting and scary all rolled up into one. Buying a house for the first time is one of those times. Once you decide to buy a home, there are so many other factors to consider. Here you will find five things to consider when purchasing your first home.
To afford the house of your dreams, most Americans choose to take out a mortgage. For first time home buyers, you need to at least have the minimum credit score accepted to acquire a mortgage. The better your credit, the better rates you will receive. Experian posts that the minimum credit score for most conventional mortgages is a score of 620. If your score is lower, you might want to consider improving your score before you jump into homeownership. Having a lower interest rate will save you money in the long run.
Once your credit is stable, you will need to also focus on saving up for a down payment and closing cost. According to the Consumer Financial Protection Bureau, lenders require a down payment that equals 5% of the cost of the new home. If you pay the minimum down payment you will be required to buy private mortgage insurance (PMI) which will be another added expense. If you can put down a larger down payment, more than 20% of the cost of the home, you will save by not having to pay PMI. Not only will you need a down payment but you will also need cash for closing cost. The average closing cost is around 2-5% of the home price.
Thirdly you will need to consider all monthly expenses. The monthly expenses not only include the mortgage payment for the price of the home but also includes other factors to consider. Some lenders will require you to pay real estate taxes and homeowners insurance bundled in with your monthly mortgage payment. Lenders will hold the money in escrow until the payment is due for the real estate taxes and the homeowner’s insurance.
Another important tip is to know your debt to income ratio. It is important to know how much you currently owe such as college loans, car loans, credit cards and other monthly expenses. To be approved for a mortgage, your debt-to-income ratio should not exceed 43%. To calculate your debt-to-income ratio you divide your monthly debt payments by your gross monthly income. Lenders will want to make sure you can afford new debt before they will approve you for a mortgage loan.
Lenders compete for your business, so shop around for the best interest rate. Lenders want your business and will compete for it. Ask several lenders to provide you with a mortgage package and compare them. Purchasing a home is one of the biggest decisions to make. A mortgage is something you will be stuck with for a long time. Make sure you are comfortable with what the lender you choose is offering you. Remember that key elements such as your credit score and interest rate can make a huge difference.
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