Excited doesn’t even begin to cover what you’re probably feeling right now as a first time home buyer. At the same time, you’re aware of what’s involved, the investment you’re making, and the magnitude of the commitment. You’re doing your homework, conducting research, gathering information, and paving your path to home ownership. You’re off to an excellent start! Here, then, are some important things to know as a first-time home-buyer.

Where to Start when Buying a House

When you’re thinking about starting the home-buying process, begin by examining your financial health: your income, savings, credit, and debt-to-income ratio. Make sure you’re financially prepared to move forward. Rock solid is best, but even if you’ve got some financial hiccoughs, there are special programs available for first-time buyers that could give you the boost you need. Investigate and apply for your special programs and home mortgage loan as soon as possible; you’ll need those as first steps before contacting agents or looking at houses. Once you’ve been pre-approved for your home mortgage loan with your loan programs in place, you’re ready to start the exciting part of buying your first house.


How Long Does it Take to Buy a House?

You can purchase a house in as little as a week if all your financial ducks are in a row and the stars align just right, or it can take as long as 60 days. But there is a multitude of variables to consider when constructing a potential timeline. The one-week to-60-day window is for those who have already secured their home loan and had an offer accepted on a property, so it’s the projected schedule from contract to close. But it can take much longer for the preliminary work such as saving for down payment and getting pre-approved for the home mortgage loan, and longer if you’re applying for programs or grants.

 

 

 

 

 

 

 

 


What do You Need to Buy a House?

Savings

To purchase a house, you need a substantial amount of savings for your down payment (approx 3 to 5% percent of the sales price of the home you’re buying). You’ll also need enough cash on hand to pay closing costs, which you can estimate at around one to eight percent of the value of the house you’re purchasing. You may need additional funds for homeowner’s insurance, HOA fees, private mortgage insurance, property taxes, or other factors contributing to the cost of the sale. There are first-time home buyer programs that can assist with some of the expenses, so while you’re working on your savings, also work on finding out what programs there are to help save you money when buying your starter home.

Credit Score

In addition to the funds, you’ll need a crystal clear credit score. Lenders check your credit history to determine whether or not you are dependable with borrowing money and then repaying the loan in a timely fashion with minimum payments or more made on time without late penalties. 

 

 

 

Debt-to-Income Ratio

Furthermore, financial institutions will investigate your debt-to-income-ratio, as well they should – and so should you. Your debt-to-income ratio is what determines whether or not you’re overextending yourself financially. When you overextend yourself financially, you risk putting yourself in a position where you’re unable to meet all of your financial obligations.

Proof of Income

Other things you’ll need are proof of income – so pay stubs, tax statements, and other documentation supporting your income. You may be asked to supply bank statements. Your lender will require any documents supporting your financial claims on your loan application.

Cosigner

If your credit score is low or your deposit is lacking, you may find yourself in need of a cosigner as well. A cosigner is an individual, usually a family member, who is willing to accept full responsibility for the mortgage on the house. That cosigner is prepared to agree to that debt onto their credit score as current debt, take the payment history including penalties for late payments, and be one hundred percent accountable for the full balance of the loan should you default. A cosigner isn’t co-owner of the property and isn’t listed as a property owner unless otherwise stated and agreed upon, but is responsible for the loan.


Can I Afford to Buy a House?

There are a few markers you can check for to determine whether or not you can afford to purchase a house. Ideally, you’d be debt-free and have a minimum of 20 percent down payment for your house, plus the ability to front closing costs and pay cash out of pocket for moving expenses without using credit cards. That’s the best-case-scenario. However, people have bought homes with far less than that available.

CHECK OUT THIS ARTICLE BY NERD WALLET FOR GREAT INFO

It’s also ideal to have a three-to-six-month stash of cash to cover your expenses in case of an emergency fund. If you haven’t established a healthy emergency fund or you have to deplete that nest egg to purchase your house, you may consider waiting until you can save a bit more, or check into the programs that assist with down payments. The last thing you want to do is back yourself into a financial corner where you’re house-poor and can’t afford daily life. That’s one way we end up with distressed short sales and homeowners being up-side-down in their real estate investment.


First Time Home Buyer Down Payment

Traditionally, homebuyers pay twenty percent down payment on the house they’re buying, and they borrow the remaining 80 percent from the bank.  When you pay less than twenty percent, therefore needing to borrow more than eighty percent, you’re paying higher interest rates and will have significantly higher monthly mortgage payments. But it can be done. There are options.

You’re best saving the money in advance if you can. You won’t find much luck trying to tap current digital resources like crowdfunding for mortgage payments – your need for a house doesn’t pull on the heartstrings of strangers who look for places to donate their money. And, although you might be able to get the money from friends, family members, or loved ones, that comes with a list of requirements, too. For example, the donor to your cause must be able to put in writing first that the money is a gift to you, not a loan that you need to repay. If it were a loan, that would influence the debt-to-income ratio. They also have to prove their financial ability to make such a gift via bank statements and other forms of financial verification. In other words, they have to jump through hoops on your behalf.

Furthermore, when you pay less than the traditional twenty percent down payment, you incur an additional cost along with the requirement of obtaining private mortgage insurance.


What Credit Score is Needed to Buy a House?

Credit is perhaps the most important factor in getting approved for your home mortgage loan. The first order of business for the loan processor is to order copies of the applicant’s credit report. The credit report gives the lender comfort that you have a respectable history with borrowing money, but more importantly, with repaying borrowed funds on time without late fees or penalties. If your credit score is in too bad of shape, you won’t get further than this point right here, so make sure your credit is good before you go in to apply for your home mortgage loan. There’s no excuse for walking into a bank not knowing what your credit score is or the condition of your credit report.

When a credit score is less than perfect, it begins to influence other factors in the transaction such as down payment, interest rates, and other terms.

Your best credit score would be between 720 and 850. Good credit produces a score ranging between 680 and 710. Your rating is fair but needs work and may create complications if it rests between 640 and 679, but if your credit score is below 640, you may want to wait before purchasing your home and focus on repairing your credit score first.

First Time buyer with Bad Credit

Even with less than perfect credit, you can qualify for a home mortgage loan and the ability to purchase your house. But, you will have to work harder in other areas to compensate. The following items can give your credit a boost if it’s in bad shape:

  • Substantial down payment (the higher, the better)
  • Significant savings account padded for financial security.
  • High income
  • Extended employment history

First Time Home Buyer Loans

First time home buyer loans are not the same as first time home buyer programs. Programs exist that can assist with things like down payment, but not with the actual funding of the loan. That’s where FHA and HUD come in.

 

FHA for a First Time Home Buyer

 

You don’t have to be a first time home buyer to use an FHA loan, a loan backed by the Federal Housing Administration. An FHA loan has competitive rates, but has less stringent credit requirements, allows for a higher debt-to-income ratio, and drops the required down payment to just three percent instead of the twenty percent traditional down payment that can feel so insurmountable.

 

HUD for a First Time Home Buyer

 

The Dept. of Housing and Urban Development, also known as HUD, has additional ways, above and behind FHA loans, to assist first-time home buyers who meet certain criteria. This department offers down payment assistance, good neighbor programs, and they also auction off reclaimed FHA financed houses as well as providing counseling for home buyers that can help educate them on how to buy and keep their home.


First Time Buyer Grants 

A grant differs from a loan because a grant is a gift that does not require repayment. There are several grant programs available, some nationally such as the National Home Buyer’s Fund which can provide up to five percent of the loan amount towards a down payment. However, most grant programs are location and income specific. Search the internet to find out what gifts may exist for first-time home buyers in your area.

401K for First Time Buyer

You can pull money from your 401K to use as the down payment on your new home if you jump through certain hoops and watch out for certain penalties. For example, the amount you receive is subject to income tax, there’s a ten percent fee for early distribution, and you may be subject to additional rollover withholdings, based on your employer and other terms.

First-Time Home Buyer Tax Credit

Between 2008 and 2010, there was a first-time homebuyer tax credit established wherein people who bought new homes within the year would receive a tax credit of $7,500. That program is no longer valid, you don’t receive that same tax credit, but you do receive other tax benefits as a homeowner. Talk with your real estate agent and with your accountant.

Questions to Ask When Buying a House

That expression, “What you don’t know won’t hurt you.” is far from being an accurate statement. Write down each question that comes to mind. Search the internet for inquiries other home buyers asked. Then, turn your questions to the right direction such as to the accountants, lenders, or real estate agents. You’re working with a team of professionals in the real estate industry, all of whom have something to gain when you purchase your house. Don’t be bashful about asking questions about your home buying experience. 

 

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Important Things to Know as a First Time Home Buyer
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Important Things to Know as a First Time Home Buyer
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You’re doing your homework, conducting research, gathering information, and paving your path to home ownership. You’re off to an excellent start! Here, then, are some important things to know as a first-time home-buyer.
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The Wilson Group
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