Buying a home is still considered a key aspect of the American Dream. As a first-time buyer, you have access to state programs, tax breaks, and federally backed loans if you don't have the usual minimum down payment, ideally 20% of the purchase price of a conventional loan or are a member of a certain group. To qualify for a home loan, you'll need good credit, a history of paying your bills on time, and a maximum debt-to-income ratio (DTI) of 43%. Generally, lenders prefer to limit housing expenditures (principal, interest, taxes, and homeowner's insurance) to approximately 30% of borrowers' monthly gross income.
The minimum credit score to qualify for an FHA loan if you have 10% down payment is also recommended. Before sending your offer, take a look at your budget. Consider estimated closing costs (which can total between 2% and 5% of the purchase price), moving costs, and any immediate repairs and mandatory appliances you may need before you move. Request energy bills for the past 12 months to get an idea of average monthly costs.
If you reach an agreement, you will make a good faith deposit and the process will change to escrow. The security deposit is a short period (often about 30 days) during which the seller removes the home from the market with the contractual expectation that he will buy it, provided that he finds no serious problem with it when inspecting it. Things you'll face and pay for in the final stages of your purchase may include appraising the home (mortgage companies require it to protect your interests in the home), doing a title search to make sure that no one other than the seller has a claim on the property, obtaining mortgage insurance or a piggyback loan if your down payment is less than 20%, and completing mortgage documentation. Other closing costs may include loan origination fees, title insurance, surveys, taxes, and credit report fees.
A general rule lenders use to determine mortgage affordability is that the estimated mortgage payment should not exceed 28% of the borrower's gross monthly income. Mortgage lenders consider things like annual income, total monthly debts, down payment, debt-to-income ratio along with loan factors such as interest rate, term, estimated taxes, and insurance when calculating how much they will lend to a given borrower. In general, homebuyers are expected to pay between 5 and 20 percent of the price of a property as a down payment. You'll need to pay a loan origination fee to your lender to cover the cost and work involved in preparing your home loan. You can expect this rate to be between 0.5% and 1% of your loan amount.
Closing costs can range from 2 to 5 percent of your home's value. Everyone has a wish list in mind when buying a home. Whether for price, size, style or location preferences matter. But the most important things to keep in mind when looking for a home are location, location and location. Most other aspects of a home can be changed but you can't move its location.
Obviously, you should choose a home within your price range and have a monthly mortgage payment that you're comfortable with. First-time homebuyers should look for a home to which they can add value as this ensures an increase in equity to help them move up the property ladder. If your student loan is in deferral and you plan to buy soon then it's important to understand how this could affect your ability to qualify for a mortgage. Usually you have to pay mortgage insurance if you put less than 20 percent down payment but the good news is that mortgage insurance companies today charge more affordable monthly premiums than they did years ago from borrowers with good credit. All these additional costs will increase your monthly housing bill and total cost of living so take some time to compare expenses if you're considering housing in multiple locations. But remember buying a home is personal so decide which factors are important based on your needs and price range.
