4 Financial Tips for Buying Your First Home

Think you might be ready to finally take the plunge into the world of homeownership? If it’s your first time, you’ll want to make sure to prepare yourself for the financial aspects of the process. While it’s not the most enjoyable part, it’s a basic necessity that will go much more smoothly if you’re well-informed. Here’s a primer on the basics.

Your Credit Score Should Be in the Best Shape

Loan companies typically require a credit score of 580 or higher unless the buyer is prepared to make a significant down payment. Prospective buyers who are unable to make a down payment of at least 3-10 percent should get their credit scores in fighting shape.

Gateway Access Realty recommends resisting the urge to check your credit score yourself and use an experienced lending institution instead—frequent checks will drive the numbers down. Make an effort to pay down smaller lingering debts, such as credit card balances or student loans that only have a few hundred dollars remaining. Also, don’t forget to make all of your current payments on time.

Be Aware of the Underwriting Process

Many lenders have methods such as CECL in place to help determine whether they are going to experience loss in letting you buy a home. A mortgage underwriter is there to help the bank evaluate these risks.

During the underwriting process, your credit history will be under intense scrutiny. The bank will ask for copies of your recent tax forms, pay stubs, and other details about your employment history. Sometimes you will not be permitted to use your credit cards, so try to hold off on any major purchases at this time.

Calculate Your Debt-to-Income Ratio

The first thing loan officers will look at is your debt-to-income ratio.  This number is calculated by adding up your monthly debt payments and then dividing them by your gross earnings during the same period. For example, if your monthly income is $5,000, and your monthly debt payments add up to $1,100, your debt-to-income (DIT) ratio is 22 percent. Before granting the approval for a mortgage, loan officers will look for a DIT ratio of 43 percent or less. If you currently have a significant amount of debt, then you may want to take steps to reduce outstanding debt before applying for a mortgage.

Don’t Skimp on the Inspection

Some first-time buyers might be tempted to skip the recommended home inspection, opting to trust the seller’s integrity. While the majority of sellers are honest, it’s important to make sure that there are no structural issues or other red flags that might have been overlooked. In certain situations, you may even be required to get a home evaluation before you will be approved for a loan. DoHardMoney.com explains that legitimate lenders typically require a physical evaluation of a property before they approve loan applications. When you’re making a significant investment, it’s better to be sure about the condition of the property.

Fortunately, the home buying process is not as complicated as it looks from the outside. As long as your credit is in good shape, you should be able to safely navigate the rest—and close on your first home before you know it.

Are you looking to buy or sell real estate in Florida? Contact us with any questions you have.

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