By doing so you could begin building home-equity wealth. Once you have fired your landlord, one of the first items on your to-do list will be to meet with a lender and start the process of securing the needed financing to buy your first home. The first part of that beginning the loan process will be to run your credit report. A credit report paints a picture of your account-payment history. But before going mortgage shopping, order your report from the three major credit-reporting agencies and correct any errors in it. Incorrect information that's negative can inflate your interest rate or disqualify you altogether from securing financing .With the loan process underway you will be advised what you can qualify for. This will be your guide to help you determine the amount of house you can comfortably afford.
Don't forget to keep in mind that in addition to principal and interest, you'll also be paying property taxes and insurance. You also need to budget for the additional funds you will need for maintenance and repairs. Before approving you for a loan, lenders will be computing your debt-to-income ratio-debt payments (excluding rent) divided by gross monthly income (before deductions). For instance, if you make $6,000 a month and pay $1200 toward your debt, your ratio is 20 percent ($1200/$6,000=0.20), which is considered very good. A higher ratio suggests a need to control spending or change your spending habits. Lenders also want to see your mortgage payment equal to no more than about 30 to 35 percent of your monthly gross income. They sometimes will approve a higher ratio but remember that stretching to far could make you house poor and that will be very uncomfortable or even stressful for a long time to come. When consulting with mortgage brokers or bankers, each one will have different loan products they can put you in but you are the one that will need to understand this well enough to shop for the best loans and terms. You can't start to soon to get your financing in order.
Understanding the rates you pay and the differences in the rate could save you many thousands of dollars over the duration of the loan. For instance , if you could save $50 a month using one loan program vrs another, that is $50 x 360 months of the typical 30 year loan. That's $8000. However, if you invested that $50.00 per month , not only do you save the $8000 but you could gain as much as $20,000 more. What if the savings was $100.00 a month or $200? This is part of the process of building wealth along with the earned equity and tax savings homeownership affords . The next consideration is to determine what the loan costs are. The lender will provide you a Good Faith Estimate of Closing Costs that will give you an idea of the lender's charges for loan origination, discount fees, credit report, appraisal, title insurance, document preparation, termite inspection and other costs. This will help you determine you how much out-of-pocket money you'll need to pay in addition to your down payment. Depending on the property and the motivation of the sellers, many times they may be willing to help with some of these costs. There is a limit though and a maximum allowed under the lender's guidelines.
Being a First Time Home Buyer there are a number of things to consider before actually buying your first home. Set out your criteria of needs and wants and make sure that with each of these criteria that you decide on, that you are being flexible enough not to pass up a property that may help you build your home equity faster. For example. If you set as part of your criteria that you want a 3 Bedroom house, consider that maybe you could live with 2 Bedrooms or even one bedroom with a bonus room. There will be a big price differences between these different criteria. Setting your parameters too high will limit your possibilities.
When the right property is found you will be writing an offer and also an earnest money check. Don't forget to take your checkbook when writing an offer. The offer once negotiated and accepted is called the purchase contract . As with all contracts, this is a binding agreement and will have penalties if you do not live up to the terms of the agreement. I would strongly recommend that you pre-arrange legal guidance or counseling before signing on the dotted line. It is critical to make sure your interests are protected. Be sure to cover the what if's. In future posts I will go through a typical contract step by step. Become familiar with it as soon as possible.
When purchasing your home, there will be strong advisories for you to get the property checked out carefully. You'll could save a bundle on unforeseen repairs if you hire a home inspector ( I always recommend a licensed contractor to do the inspection) who may uncover hidden problems like structural defects before you close on the property. Home inspection companies are OK but the inspectors may have limited knowledge and because building contractors are licensed, they are more able to get into recommending specific alterations to correct the things they will uncover. More to follow. Watch for "Fire Your Landlord" Part II.
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