Know Your Credit Score and Financial Picture

The first thing you need to know is what your current financial picture is. You need a clear picture of your income, debts, assets, and credit scores. You should know how much you have saved, and how much cash you will have available for a down payment and loan costs. This can be overwhelming, but it’s an important step in the process and you need to make sure you tackle it early. If you don’t take a good look at your financial picture until you have found your dream home, you may find yourself walking away disappointed.

Get free copies of your credit report and look at it carefully. If you have any errors, dispute them. Keep your current cards open, but keep your balances low and don’t open any additional cards or apply for additional loans. Your goal is to get your credit score as strong as possible before heading into the mortgage process. If you don’t have savings, you will also need to begin saving toward your down payment. Many mortgages will only require a 3% down payment, but that will still add up to several thousand dollars you’ll need to have available. Before applying for a mortgage, look at your full financial picture and note where you need to take action.

Understand Your Budget as a First Time Home Buyer

As a first time home buyer, you want to understand what your budget is for a home and how much home you can afford. You will set your price range based on your income, down payment, interest rate, and estimated taxes and insurance. First, look at your monthly budget. Generally speaking, no more than 25-30% of your take home income should go to your housing payment, which includes your mortgage payment, taxes, and insurance. Once you know how much you will be able to pay monthly, and once you determine how much you will be able to save as a down payment, you can use a mortgage calculator to estimate your price range.

Consider the Mortgage Options

There are several different mortgage options to consider as a first time home buyer. Many home buyers assume that a traditional mortgage with a 20% down payment is the only way to go, but there are many options out there and finding the right one can be overwhelming. Some include:

• Conventional fixed rate mortgages – not guaranteed by the government. Some first time home buyers may only need to put 3% down. A conventional mortgage for more than 80% of the purchase price will usually require PMI (private mortgage insurance). These mortgage terms can be 15 or 30 years.
• FHA loans – mortgages insured by the Federal Housing Administration that allow down payments as low as 3.5%.
• USDA loan – these loans are for rural home buyers and guaranteed by the Department of Agriculture. They typically require no down payment.
• VA loan – for current and veteran military members and their families. These loans usually require no down payment.
• Piggyback loans – a conventional mortgage combined with a second mortgage (usually in the form of a home equity loan) that allow a lower down payment without mortgage insurance.

The best way to determine which mortgage option will be the best for you, and which programs you qualify for, is to speak to an expert. A financial consultant can guide you through the process and help you figure everything out before you apply for a mortgage as a first time home buyer. We know the mortgage process can be confusing and overwhelming and we’re here to help. Contact Equibox Mortgage for more information about home loans and where you stand.