First-time homebuyers purchase 31 percent of all homes bought. While this can be an exciting prospect to achieve the American dream of homeownership, it's not without its challenges.
You have to be well-prepared and organized if you're considering buying a home. The median home is only on the market for 37 days before being snatched up. Once you're ready to buy, homebuyers spend only eight weeks looking before purchasing.
Homebuyers look at a median of four homes in person before making a purchase.
If you're considering buying a home, there are many things to consider even before getting a home loan. With homebuying stats like these, you want to be sure you're ready to jump into the homebuying process.
Read on to learn more about what you should do as you prepare for getting a home of your own.
Before you can buy a house, you must first get your financial house in order. When you approach the mortgage lender, you want to have your personal finances in tip-top shape and ready to be scrutinized by the lender.
Let's take a closer look at the steps you should take to address your finances before applying for a mortgage.
Start by taking a look at your credit score. It will be one of the first things any lender will consider when you apply for pre-approval for a loan.
The better your credit score the better the terms of your eventual mortgage.
Also, obtain a copy of your credit report. The major credit bureaus, Equifax, Experian, and TransUnion, will all compile information on your credit history. Look it over carefully for potential misinformation. Be prepared to address any concerns that show up on it.
One way you can improve your credit score is by addressing your debt. Make sure you show a consistent pattern of paying your bills on time. While you're preparing to buy a house, work on paying down debt.
Lenders will consider your debt-to-income ratio (DTI). The debt-to-income ratio is how much of your monthly income is used to pay your monthly debts. This ratio is used by lenders to help determine how much you can qualify for in a mortgage.
Most lenders won't want your DTI to be higher than 43 percent to qualify for a mortgage, so before you apply you want to check this and pay down debt as needed.
You will also need to work on saving before buying a home or even applying for a mortgage.
Not all types of loans require a down payment anymore. Although generally the more down payment you have the better the terms might be in your mortgage loan.
You will also need to be prepared for other expenses related to buying a home like getting a home inspection, buying homeowners insurance, and even moving expenses.
As you work to get your financial house in order, you can start to learn about the many types of mortgages that are available for homebuyers.
Your lender should be able to help find a mortgage that is the best fit for your borrowing needs.
You will want to learn about the terms of the mortgage, which simply means how long you have to pay back a mortgage and at what interest rate.
You can also discuss with your lender if it makes more sense to do a fixed-rate mortgage where the rate stays the same for the entire life of the loan. Or is it better to do an adjustable-rate mortgage where the rate could change over the life of the loan?
Let's take a quick look at some types of mortgages.
A conventional mortgage is one that is not backed by any government agency. It typically means the borrower needs better credit and more down payment.
Each lender will have different terms for down payment requirements.
An FHA loan is one that is backed by the Department of Housing and Urban Development. This means they guarantee the loan to the lender.
Current FHA requirements say you need a FICO credit score of at least 580 to qualify for a 3.5% down payment. If your credit score is between 500 and 579, you will need a 10% down payment to qualify.
FHA loans will require the borrower to pay mortgage insurance for a period of time.
The United States Department of Agriculture also backs a mortgage. The USDA loans are specifically designed to develop rural regions. They do have specific lending requirements by the USDA but are fulfilled by private lenders.
If you're a veteran, you may qualify for a VA backed home loan. Lenders will still have their own credit and down payment requirements, but the VA backs the loan. One advantage of a VA loan is that you won't pay private mortgage insurance.
Once you have your finances in order and understand your mortgage loan options, you should start by comparing lenders. Do your homework, not all lenders are the same.
You'll have more luck finding a home and getting a seller to agree to a sale, especially in this tight housing market, if you have been pre-approved for a mortgage.
The pre-approval can show you're ready to buy a home in good faith. It also helps you to know exactly what amount you'll be able to secure in a mortgage and what you can afford.
Once you find a home and reach a purchase agreement with the seller, you want to apply for the actual mortgage. This process can go more quickly if you've already been pre-approved.
While you wait for the approval and final closing paperwork, you want to secure a home inspection and arrange homeowners insurance.
Once your home mortgage has been approved, you'll arrange a closing date and then you'll be ready to settle into homeownership.
Of course, part of your home buying goals will be to find the best loan for this purchase. Prepare your own finances, study your loan options, then work on getting a loan that best matches your needs.
Whether you're looking for a business loan, home mortgage, or have personal banking needs we can help. Contact us at Triad Bank to discuss all your banking needs.