When it comes to purchasing your first home, there are many considerations to be taken into account.
However, whether you are purchasing your first home or your 10th, the whole process should always begin with the financial commitment and the home loan.
In the articles that follows, we will lay the four keys to success, when it comes to someone obtaining their first home loan. This information is also relevant for anyone thinking of applying for a home loan in the near future.
Key #1 - Credit
Your credit score affects not only what type of loan you may obtain, but also what the interest rate on your loan may be. It is important to review your credit well ahead of applying for a home loan, to check for any inaccuracies or items that may need to be corrected. You may go to htttps://annualcreditreport.com and pull all three of your credit scores for free and review all of your information.
Conventional loans have higher minimum credit score requirements, with a minimum of a 620 credit score required to obtain a home loan and with your interest rate improving slightly on sliding scale between a 620 and 760 credit score.
On FHA and VA loans, there are technically no minimum credit score requirements, but you will generally need at least a 580 credit score to obtain a home loan and again as your credit score increases, your interest rate will decrease.
If someone does not have a credit score at all, due to insufficient credit, then they still may be eligible for a home loan, by using alternative forms of credit, such as proof of cell phone, rent and utility bill payments.
Key #2 - Employment
Employment is very important, as one of the first steps in being able to qualify for a home loan is being able to pay for it. In general, most loan programs will require a two year work history in the same line of work, but not necessarily the same job.
However, an exception to this rule, is if someone is a recent college graduate. If the degree received can be shown as a logical pre-requisite for the job they are now working, then the two year work requirement is waived, as long as you can show a two year combined work and school history and a completed degree.
For instance, if someone graduated with a degree in elementary education from a college and then went on to obtain a job as a school teacher at an elementary school and wanted to buy a home their first year of teaching, the two year criteria would be waived, as their education can be linked to their work history.
Key #3 - Income
Income is another key component of being able to purchase a home and ties right into employment. In general, when purchasing a home, a good basic measure of how much income you need to purchase a home is to look at debt to income ratios and keep them at or below 45%.
For example, if someone has a salary of $5,000 per month in gross income, their monthly debt payments, including their new mortgage, could not exceed $2,250 a month (45% of $5,000). So, a person would look at all debts they have that would appear on the credit report (credit cards, student loans, auto payments, etc.) and add up all of the monthly minimum payments. Let’s say that number was $600, if that is the case, you would then deduct that from $2,250 and in this case, you would see that you could qualify for a mortgage with a monthly payment no higher than $1,650 per month.
Key #4 - Down Payment
The down payment will vary by the loan program, but for first time home buyers a conventional loan be obtained with as little as a 3% down payment. While FHA loans require a 3.5% down payment and VA loans do not require any down payment at all.
In addition, the down payment may also be gifted by a family member as well, meaning that none of it necessarily needs to come from the buyer.
These are some of the most important basic requirements to qualify for your first mortgage. However, as always, if you are looking to be qualified for a new home loan for the purchase or refinance home loan, please speak with a licensed lender such as Strategic Mortgage, to fully and properly explore all of options for your specific scenario.
For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: firstname.lastname@example.org or online at www.strategicmtgaz.com
Strategic Mortgage, LLC - AZ BK#0909514 - NMLS#158804 - Equal Housing Lender – Vasilios Bill Kamboukos Jr – NMLS#160440