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There are so many reasons I should buy my first home but I don't know what to do next!

By
Mortgage and Lending with www.LowestHomeLoanRatesinFL.com ~ FL FHA Mortgage Expert

After hearing all the great incentives to buy a home in 2009 - low mortgage interest rates, attractively low home prices and the $8000 the tax refund provided to first time home buyer through the new economic stimulus package - you are now ready to buy your first home.  Only one problem, you need to know where to start and what to be aware of.  The information listed below should help prepare you for your first steps in the wonderful adventure of purchasing a home.

 

What are the initial steps to take as a first time home buyer?  If you call a real estate agent they will tell you in order to begin looking at homes you will need to determine the purchase price that you qualify for.  To do that you will need to apply for a home mortgage and get a pre-approval letter which will allow you to preview homes in your price range and submit an offer on the house you would like to buy. 

What is a pre approval letter and what do I need get one? When asking this question you have to understand two things about mortgage financing.  First, buying a home is not like buying a car or getting approved for a credit card, it requires you as the borrower to prove your credit-worthiness to the lender and second not all mortgage companies are working at the same level of diligence.

 

Let's take a look at the several factors involved in proving your credit worthiness

Credit - In recent past lenders were allowing credit scores as low as 550 to 580 but currently the market has tightened up their requirements and now require borrowers to have 620 or better.  This number is determined by using the middle score of the 3 bureaus - Equifax, Experian and Transunion.  Lenders also like to see that there are no late payments in the past 12 months.  If there is a late payment it needs to have a good strong letter of explanation to back it and usually only 1 late payment is acceptable within a 12 month period. 

Income - Lenders will look at the past 2 years of W-2's and 1 recent months worth of paychecks for the payroll employee and 2 years of personal and business tax returns for the self employed borrower.  The lender also wants to see 2 years of employment history in the same line of work to ensure continued satisfactory employment.

Down Payment/Closing Costs - There are 4 main types of loans that a first time home buyer can utilize with varying down payment requirements.  The two most commonly used financing options are the FHA and Conventional mortgage loans. An FHA loan requires a 3.5% down payment and a conventional loan requires anywhere from 5%-10% down payment. The other 2 mortgage loans feature no down payment requirements - the VA loan which is issued only to those who served in the military and the USDA home loan that is for homes in rural developments.  All of these loans require the buyer to pay closing costs.  Closing costs run anywhere from 4000 and up depending on the inspections, appraisal, insurances, title fees, state & local taxes and lenders fees.  In some scenarios a buyer can ask the seller to pay their closing costs to help reduce the amount of cash required to purchase the home.  Some buyers choose to use the money family members have decided to give as a gift for their down payment and/or closing costs when buying a home.

 

In order to receive a pre-approval letter you must complete a mortgage application with the correct information about the employment, income and cash reserved for the down payment and closing costs.  The mortgage consultant will pull your credit and if acceptable, you must provide the proof of your cash to close and all the proper income documentation which will need to be reviewed.  Once reviewed only then can a pre-approval letter be issued.  The reason that I stated above that all mortgage companies do not work in the same level of diligence is for this very reason.  Until you provide your income documentation you are not pre-approved for a mortgage.  Many times I hear that buyers have an approval letter but they haven't given their documents to the lender.  This means the lender is taking the buyers word that they have given the correct income information.  While doing the best to give the right information, buyers do not understand all the details that are involved when determining how much income they have available for their loans approval.  Since there are so many factors involved, a true pre-approval letter can not be issued until the mortgage consultant has received your income documents.

 

Another note - when buying your first home, it is always wise to go over your monthly expenses and determine what monthly payment would be comfortable.  Let your mortgage consultant know right up front what your target is for a monthly payment.  This will help you to avoid spending more just because you get approved at a higher purchase price. 

 

Comments (3)

Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239
Real Estate One - Commerce, MI
Michigan homes for sale ~ yesmyrealtor@gmail.com

You should always get the mortgage started and get your documents in

Mar 04, 2009 01:36 PM
Claudette Millette
The Buyers' Counsel - Ashland, MA
Buyer, Broker - Metrowest Mass

Kristina:  A good post on the first steps necessary.  So many buyers do not realize that they must first decide what they can and are comfortable spending before venturing forth.

Mar 04, 2009 01:53 PM
Kristina Yorke
www.LowestHomeLoanRatesinFL.com ~ FL FHA Mortgage Expert - Saint Petersburg, FL

Russ-This is the key and helps real estate agents know where to begin their process

Claudette-Thank you, I know buyers need to be pointed in the right direction!

Mar 04, 2009 02:09 PM