Are you thinking about purchasing a new home? Before getting a home-ownership, you need to meet the specified requirements. Plus, there are important mistakes to avoid. Read on to know what we are talking about!
For many people, the home acquisition is a once in a lifetime experience and it can absolutely be a challenge. The process you will go through is not that simple and quick. All you need is discipline, attention to details, and patience since home ownership can take up to a year. Though, that still depends upon the mortgage lender or other factors.
Especially for first time buyers, the experience is more challenging. House searching, scrutinizing homes, buyer negotiation, and closing a home purchase are nuanced deeds. To help you out and make your search less stressful on your part, we have combined five important requirements you have to complete on time so as to qualify for first time home acquisition and later, get that house you really want for a sense of security and stability for your family.
#1. Good Credit Score
Undeniably one of the essential qualification requirements for first time home buyers who want to get a mortgage loan. You must be in the clear if you have a record of having reduced debts and paying bills on time. Make sure to have a credit score of at least 620 for you to get a favorable interest rate.
But if your score is below 620, don’t despair yet! There are some mortgage lenders that accept a low credit score of 580. Not sure how much your total credit score is? There are reputable third party sites that allow you to check your score from all three credit reporting agencies – or you can go directly to the source. Each of the three credit bureaus will allow you to pull your credit report (for free) once a year.
Having a low score though means making it a bit difficult for you to get approved. Fortunately, there are various ways you can implement to increase it.
- It is always crucial to pay all your bills on time. You can set up an auto-pay to keep track all of your bills.
- Do not attempt to apply for new lines of credit, loans, or credit cards. The application (even if the credit is denied) is reported to the credit bureau. If that happens, it can lower your score. Besides, it will add debt to your record which can affect your credit scores in a negative manner.
- Pay down your credit card balances to not more than 10 to 15 percent of the card’s limit.
Lenders whan to make sure you have an adequate amount of income to repay the mortgage loan obligation, so they practice strict attention to the borrower’s net income. How much income do you need to get a home loan approved? This will be based upon the method used by the lender to compute income.
- Annual salary: Your annual gross income will be divided by 12 months to know your monthly income.
- Annual salary plus a bonus: The annual salary is divided by 12 months. Your potential lender can consider qualifying income if you’ve received bonus income for at least 2 years and your employer indicates that bonus income will carry on. The last 2 years of bonus income is divided by 24 months.
- Overtime pay: The lender totals your last 2 years of overtime pay and then divides by 24.
- Hourly income: In this case, lenders usually multiply the hourly rate by the average hours a person works. Recent job changes or inconsistent work hours can affect the income calculation. You might have difficulty applying for a first-time mortgage if you have little or inconsistent work experience.
- Commission income: Your base income will be the monthly average of your prior 24 months of income when you earn at least 25% of the income from commissions. Your lender may not accept commissions as a part of your income if you have less than 24 months of commissioned income. There are exceptions, though.
- Self-employed: In order to become eligible for a mortgage, you need at least 2 years of verified income. Lenders make use a complicated form to know your qualifying income.
#3. Debt to Income Ratios
Debt to income ratio or DTI tackles about the amount of money you spend on your revolving debts and the amount of money you earn. Lenders check this to ensure the home loan keeps you within your means in order to prevent potential foreclosure from becoming over-extended financially.
#4. Necessary Documents
Get a big folder and have all your paperwork together. You will need to prepare a copy of your credit report, pay stubs, tax returns, and many other important documents.
#5. Minimum Down Payments
The amount of down payment you need to purchase a home greatly depends on the type of mortgage you get. For instance, conventional loans require 3% or 5% money down. You can even get down payment funds from a family member or any third party.