Buy Your First Home in 8 Steps: Step 1

Buy a Home in 8 Steps

A Guide for First-Time Homebuyers

Navigating the home buying process can be difficult and stressful whether you're a first-time buyer or have purchased multiple homes. The best way to avoid becoming overwhelmed is to be educated.

Buyer's who are well prepared and organized, no matter the type of market, will be in a better position to get the home of their dreams by following these steps.

This week we will begin with Step 1.

The key to buying a home is knowing how much you have to spend on a home. 

A mortgage lender will verify your income and ask for copies of your most recent bank statements and find out what your debt to income ratio is. Not all lenders will run your credit history! 

What Lenders Look For

Lenders look for steady employment history, consistent income, and debt to income ratio, roughly 45%. Debts are things like car payments, credit cards minimums, child support payments, student loan payments, etc. To figure out your debt to income ratio, add up your monthly bills and then divide by your gross monthly income.

Pre-Approval vs. Pre-Qualification

Depending on the lender, they will either issue a pre-qualification or a pre-approval.  

• A pre-qualification is a general idea of what you could qualify for without doing a credit check. It is an estimate. 

• A pre-approval is a complete look at the borrower's credit history. The lender will perform a credit check, look for outstanding debts, collections or liens.  

Upon approval the mortgage lender will determine how much you’re able to borrow, and what loan you qualify for. The lender will also explain your down payment amount, closing costs, and what your interest rate will be. 

If you don't qualify, the lender will explain what you can do to clean up your credit so you can buy a home soon.

You can request your credit report for free and up to 3 times a year here: www.annualcreditreport.com

Does an Approval Matter to Your Realtor?

YES! Unless you are paying cash, the loan you qualify for matters to the Real Estate Agent. The type of loan accepted is listed on the listing itself. Some homes accept VA and FHA while other homes accept Cash or Conventional loans. Very few homes will accept all loans. 
 
To find what loans are accepted on homes you are interested in, look at the “Listing Terms” under the “ Listing/Contract Information” Section or in the “Other Facts” Section. Or, ask your agent. 
 
Buying a home is the biggest purchase you will make in your lifetime. Knowing what you qualify for makes it easier when you want to make an offer.  Buyer's who are well prepared and organized, no matter the type of market, are in a better position to get the home of their dreams.

Recap:

• Meet with a Mortgage Broker. 

• Determine the type of loan you qualify for, your down payment, & interest rate.

• Your broker will issue a Pre- Approval letter good for 90 days.

• Having a pre-approval letter puts you one-step ahead of others.

• Give a copy of the approval to your Realtor.

MY TIPS:

• Pull your own credit. 

• Meet with a few mortgage lenders. 

• Ask how much they charge in fees.

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