After some time, you’ve already decided to buy your own home either for you and your family to live in or for the purpose of building your own family. Regardless of the case, you need to familiarize yourself with five of the important requirements you must fulfill before getting that house you have been dreaming for. We are ready, so let’s explore them!
Your home is the biggest investment you will ever make. It requires thorough planning and smart decisions. The struggle is even real for first-time home buyers. Worry not, we’re here to help!
Below are 5 requirements you should take into account when embarking on getting your dream house.
- Credit Score
A good credit score is not only extremely essential for repeat buyers, but for first time home buyers as well. It will enable you to purchase a property with a bit ease and comfort. Credit scores are 3-digit numbers that give lenders an idea on how you have borrowed and repaid money previously.
It is based upon the information of a person’s credit report history, including things such as credit cards, car loans, etc. Mortgage lenders typically want to see a score of 640 or even higher if you opt for a conventional loan. For FHA loan, the set of mortgage requirements are separate. These rules are created by the Department of Housing and Urban Development. You will have to attain at least a 580 credit score before qualifying.
- Basic Income
Lenders need any proof of your income to ensure you can be able to pay for a residential property. Those with median or higher incomes are likely to get a home loan at better rates. In addition to income, lenders will want to see employment stability, usually 2 years or longer with your current employer – or at least several years within the same career field,
In order to verify debt and income levels, mortgage lenders look at you will request several types of documents and occasionally, more recent copies of documents they may have already asked for throughout the loan process. Collect your tax returns, bank statements, and most recent pay stubs. For people who are receiving alimony or child support by court order, you will be required to verify these deposits if you are including the funds in your income calculation.
- Debt to Income Ratio
Debt ratios are another crucial mortgage loan requirement when qualifying for a home. Lenders review the current debts of a person to make sure he is not taking on large sums of (unaffordable) additional debt with the home loan purchase.
Your debt to income ratio – the total amount of your monthly income compared to your monthly debt obligations. Fortunately for the first time and even repeat buyers, higher debt levels are now allowed by the lenders. The debt to income ratio limit is increased from 45 to 50 percent in recent years.
Meaning to say, you can combine debts totaling 50 percent of your monthly income and still be eligible for a home loan. This is significantly beneficial and helpful for first-time buyers who have already significant debts, such as personal loans or student loans.
- Minimum Down payment
If you are using USDA or VA loan or another government-backed program, you’ll likely need to down payment of some type.
Depending on the mortgage type being used, the minimum down payment for home loan eligibility can vary. But in some cases, conventional loans need as little as 3 percent down while other lenders may require 5 percent. Gone are the days of mandatory 20% down to qualify for a loan.
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Buying a new house for the first time doesn’t need to be a nerve-wracking experience. Make sure to adhere to these requirements in order to navigate the entire process smoothly and avoid common mistakes. Working with a reliable agent is crucial, too. He or she will introduce you to the recent designs or types of the house you may want to consider, a neighborhood that may appeal to you, and other important factors – all while meeting your housing needs and sticking to your budget.