With home prices expected to even out and interest rates still maintained at record lows, 2016 promises to be a great year to buy a house. Though interest rates are projected to increase by the end of the year, it’s not a reason to panic. According to Federal Reserve officials, the interest rates will rise by half a percentage point, which is very unlikely to become an obstacle to home affordability.
However, buying a home is not something a first time home buyer should take lightly. Besides getting as much information about the process as possible, below are four things a would-be home buyer should consider doing before he starts looking at houses.
1. Check the credit score. The credit score is one of the few things lenders consider before approving or rejecting a loan application. Since the credit score affects not only the ability to qualify for a loan but also the interest rate lenders are willing to offer, a home buyer should obtain and review his credit report. Under federal law, consumers are entitled to one free copy of their credit report every 12 months upon request from each of the three credit reporting agencies (Experian, Equifax and TransUnion). If errors, omissions or inaccuracies that might affect the credit score are found, the person should try to fix them before applying for a mortgage. Applicants with bad credit scores may be good candidates for the federal mortgage programs developed for first time home buyers. HUD-approved housing counseling agencies can help home buyers sort through the financing options available to them.
2. Determine home affordability. A home buyer should also know exactly how much mortgage he qualifies for. As a rule of thumb, a buyer’s total debt, including the home loan, car loan, credit card payments, etc., should not exceed 36 percent of his gross monthly income. Since this ratio, known as debt-to-income (DTI) ratio, provides a level at which a borrower can comfortably repay his debt, many lenders use it as a guideline when assessing the borrowing capacity of applicants. Another important aspect is that the DTI ratio is dependent on the down payment (the higher the down payment, the lower the DTI ratio will be). A potential home buyer can find out exactly how much money he can borrow by using our mortgage calculator or by getting pre-approved for a mortgage.
3. Pick the right mortgage. Choosing the right type of mortgage is impossible without finding out what’s available for first time home buyers. Besides conventional mortgages, first time home buyers can find multiple homeownership assistance programs that include a wide array of benefits, ranging from credit scores as low as 500 and reduced PMI premiums to down-payment and closing cost assistance. For a complete list of special homeownership grants or programs available for first time home buyers in Florida, please read our article, “Grants & Programs for the Florida First Time Home Buyers.” Since mortgages can be quite confusing especially for a first time home buyer, he should ask his lender all the questions necessary to know exactly what is coming in and what is owed.
4. Get pre-approved. A first time home buyer should get pre-approved for a mortgage, not just pre-qualified. Besides showing the seller that the offer is serious, a pre-approval letter puts the buyer in a better position to negotiate and speeds up the mortgage process, allowing the buyer to take possession of the new home sooner.
Doing all these things can help a first time home buyer be better prepared for getting a mortgage and buying his first “sweet” home. To get the facts about home financing options available to you, we invite you to get in touch with our mortgage experts today by calling (904)-389-4635.