Buying a home can be really intimidating for first time home buyers, so I just wanted guide you through it. First off…
- Do you have a stable income source?
- Show you have some sort of income coming in (W2) (regular 9 to 5 worker) preferred – independent contractors or self employed (1099) might have be seen as a bit more risky by lenders
- Lenders want to see 2 years of consistent income coming in
- Have tax returns ready – show you’ve been paying taxes on that income
- Debt to income ratio – the amount of overall debt you have divided by your total income (usually calculated on a monthly basis)
- 28/36 rule – 28% of your income should go to your mortgage, 36% of your income should go towards all your revolving debt (credit card payments, college tuition, hospital bills, etc.)
- The max lenders might be willing to accept might be around 43%
- Keep debt to income ratio as low as possible
- Keep track of all revolving debt (and expenses in general)
- Credit Score
- Extremely important in 2021
- Shows how trustworthy you are
- Shows how likely you are to pay them back
- Measure of risk
- Having a low credit score shows lenders you’re not responsible with money
- On the other hand, having a high credit score shows that you’re reliable and better at managing your money
- Think about it from the lender’s perspective, if you were lending someone money (especially thousands of dollars) you would definitely want them to pay you back
- Some people learn this way too late, so stay on top of your credit
- You can download apps like credit karma or Experian that tell your credit score for free
- The only thing the lender is REALLY concerned with “Is this person going to default on his mortgage payments?”
- 580 score – FHA
- 620 score – Conventional
- I’d highly recommend you getting your score at least into the 700’s for the best interest rates
- Have cash set aside in the bank (for the down payment + at least 6 months to 1 year of emergency funds)
- Get pre approved – what will they ask for?
- 1-2 years of tax returns
- 2-6 months of bank statements
- Full credit report
- Paystubs
- 2-6 months of expenses
- Stick to your budget – what is your risk tolerance?
More things to Consider:
- Interest payments
- Down payment
- Length of term (15 Vs. 30 Years)
- Closing costs
- Prepayment penalties
- Mortgage insurance (PMI, MIP)
- Know the market
- Make sure your agent is working in your best interest – don’t be afraid to ask questions – advantage of using an agent: they don’t have an emotional connection with the home
- Make sure all other debts are paid off
Other things to consider
- Location -it’s a cliché fur a reason
- You can always make adjustments
- Street traffic (if you drive) – check out the neighborhood (at different times)
- Neighbor noise (ask around)
- Are there grocery stores nearby
- Is there mass transit near by
- Do inspections – as many as possible
- What are your non negotiable’s?
- The process could take longer than you might think (3-4 months) – negotiating, dealing with lenders, inspections, appraisals)
- Have the seller show you EVERYTHING
Should you use a real estate agent?
- This decision is completely up to you, but keep in mind this is the biggest purchase of your life
- Keep in mind even real estate agents use other brokers to help them find a home (it takes the emotional aspect out of it)
- Don’t step over dollars to pick up a dime
- The seller usually pays the agent
- Let your agent know what your top priorities are