How to Finance a New Home as a First Time Home Buyer.
Are you planning on buying a home for the first time in Bend or elsewhere in Central Oregon? If so you’re not alone.
2018 is a great year for buying a home because of still historically low mortgage interest rates which have made it ideal for first-time homebuyers to purchase new homes across the United States.
We recommend sitting down with a qualified lender to discuss your specific situation, but here are some basics that a first-time homebuyer should know about getting ready for financing when buying a home.
Get To Know Your Credit Score
One of the biggest problems that many first-time homebuyers face when buying a new home is that they have absolutely no idea what their credit score is because they haven’t checked their credit score in years, or they’ve never checked it at all.
To verify what your credit score is before buying a home you should purchase a copy of your 3-in-1 credit report. This credit report will give you the opportunity to view what the three major credit bureaus are reporting about you including the Equifax, TransUnion and Experian.
After reviewing your credit reports you will need to start the dispute process immediately if you find one or more inaccurate items on your credit reports. This process is important because removing inaccurate items from your credit report can literally mean the difference between spending thousands of dollars more or class during the lifetime of your mortgage loan.
The recommended credit score for buying a home in 2016 is 660 because, the higher the credit score you have lower the mortgage interest rate can qualify for. If your credit score is lower than the recommended 660 you may still don’t qualified for a mortgage loan because many lenders including HUD do offer mortgage loans to people with credit scores as low as 580.
If you do decide to choose a HUD or FHA loan keep in mind that you will have to pay private mortgage insurance with these loans and this will ultimately increase your monthly mortgage payment by an additional $100 or more per month so it’s always better to work on improving your credit score first because the higher your credit score is means you qualify for a great mortgage loan and pay less money over a 15 or 30 year loan.
Use Credit Correctly
As you are getting ready to apply for a new mortgage loan remember that you absolutely have to use your credit responsibly and this means only spending up to 30% or less of the credit limit that you may have on each credit card.
First time home buyers who have more than one credit card and balances on some your cards are $500 or less you should also focus on paying off some of those balances if possible because, lenders want to see that you have a debt-to-income ratio that’s no more than 36 percent while some lenders will find a debt-to-income ratio as high as 45 percent acceptable.
Organize Your Financial Documents
By far one of the most important things that you can do to get ready for applying for a mortgage loan is to get all your financial documents in order. This step is vital because, lenders want to see that you have verifiable financial documentation which should include:
- Two paycheck stubs
- Two W2’s
- Tax returns from the last two years
- Bank statements
- Proof of income from investments
- Letters documenting financial gifts from relatives or friends
Buyers who are currently self-employed or a commission only sales person you must show at least two years worth of income history.
Decide On the Mortgage Payment You Can Really Afford
Once you get closer with buying a home you should also decide upon the mortgage payment that you can really afford and this means writing down your current monthly budget which includes the rent that you’re paying right now bills and your other financial obligations.
On top of your current bills and other financial obligations you should also add the cost of setting money aside for repairs your home, homeowners insurance and property taxes.
Save Money for Down Payment on a Home
One of the most important things that you should do before buying a home in Bend, Oregon or elsewhere in Central Oregon is to save money for the down payment on a home.
As of 2016 the recommended down payment when buying a home is at least 20% of the home’s value but, thankfully there are many mortgage loans available that enable buyers to pay a down payment that’s as low as 3.5 percent.
Choose the Right Mortgage Loan
Besides saving enough money for a down payment on a home you should also choose a mortgage loan that’s right for you, some of the best mortgage loans to choose from in 2016 include: HUD, FHA, VA (veterans only) and USDA loans and there are a variety of other first time home buyer programs that you may qualify for including programs by the U.S. Department of Agriculture.
One of the great things about this Real Estate market is that first time home buyers have many options available to them including grants and other sources of financing so if you have good credit there are many options available to help you get into the home of your dreams.