You can set yourself up to qualify for a loan as a first-time homebuyer.
If you want to buy your first home, you have to make sure that you will be able to qualify to finance it. Buying a home is not as simple as buying small-ticket items because you need to meet stringent requirements for this big investment. Does this Spark an idea?
Instructions
1. Write down your net income and your debts. Some lending firms can let you borrow over 90 percent of your home value. Target a mortgage payment, including principal, interest and escrows, that does not exceed 30 percent of what you actually make monthly after taxes and after your other debts. Include property taxes and home insurance as well as principal and interest. Include a cushion for maintenance and repair. You'll need funds to cover a busted pipe or broken heater in the dead of winter, and other major repairs.
2. Look into the possibility of a low-documentation loan if you do not have a regular income you can prove. This kind of loan is designed for those without a consistent income or without a lot of proof of their income. You may have to deposit at least one-third of the value of the home as a down payment to take advantage of this option. The interest rates will be higher than for standard loans because the lender is taking a bigger risk. On your end, if your income is not well documented or inconsistent, you must be certain you will really have enough income to afford buying a house.
3. Save for the down payment. If you don't have the money to make a big deposit, banks and lenders may give you a low-equity loan with a deposit less than one-fifth of your home value. This may entail a slightly higher interest rate. The smaller the down payment, the bigger the monthly mortgage.
4. Allow for settlement expenses in financing your first home. These may include legal fees, insurance, an assessor's fee or titling costs. Find out what extra fees you pay at settlement in your state and with your lender.
5. Check your credit rating, which figures highly into your ability to qualify for a mortgage. If your credit is not good, you will have to work harder to get approved for the loan, or you may be better off waiting while you work on getting your credit rating up to par.
Tags: down payment, your credit, credit rating, home value, principal interest
