Buying your first property can be very exciting and can mark a real turning point in your life. However, for most it is a totally new experience, and therefore it can be difficult to know where to start.
Property purchasing can be a stressful experience even for those that have been through the process before, but a little preparation and advanced planning can go a long way towards making the process a lot smoother.
How much can you afford?
The first thing you need to determine is how much you can afford to spend on your property. One mistake that first time buyers make is to go around looking at properties, finding their dream home, and then realizing that they cannot come even close to affording it. This wastes time and can cause real disappointment.
Instead, use your valuable time wisely by working out how much you can afford. Most lenders will allow you to borrow around three times your annual household income, perhaps a little more in some cases. However, you also need to take into account any debts, as these will impact on the amount you can borrow.
The wisest thing to do is get an idea of how much you can borrow based on income and debt levels by going to a professional. This will allow you get a more accurate idea of how much you can afford to spend on your property, enabling you to look at potential homes that are within your price range. This can save you a great deal of time and disappointment.
Another thing for first time buyers to consider are outgoings that must be worked into the monthly budget. If you have never lived independently before, you may not be aware of how much running a home can cost. You should look into the monthly costs for services such as utilities, and also take into account monthly costs for groceries, car running costs, and other necessary monthly payments. This is in addition to any ongoing commitments you have, such as credit cards, loans, insurance premiums etc.
Other considerations include down payments and money to actually set up your new home. The down payment required will depend on the lender you go through, but there are some good deals available for first time buyers. You can get a deal that allows you to put down just three percent – sometimes less – on your new home. This is a valuable bonus for first time buyers, as they do not have equity to put down in the same way as a buyer that has just sold their old property. You will also need cash to set up your new home, for items such as furniture and to pay for connections such as the Internet, cable etc. if required.
Type of Mortgage
If you decide that you can afford to take out a mortgage, and you are happy with the amount that you can borrow, you then need to determine what type of mortgage you want to take out. You can talk this through with your lender, but you should base it on your income, your expected future income, and your own personal preference. If you are nervous about rising repayments, then you can opt for a fixed rate mortgage. However, if you have the capacity to increase payments should the interest rate rise, you can opt for an adjustable rate mortgage.
Qualifying for a Home Loan
When applying for a home loan, lenders look at a variety of factors before deciding your qualifications. Such as:
Employment history and how long you have been at your current job
Most lenders are very strict when it comes to employment. Most lenders prefer buyers whom have steady employment history and at the least, two years at their current position. Employment plays an enormous factor in determining your ability to pay your mortgage. Lenders also use your employment to determine how much they are willing to lend to you.
Credit history and/or FICO Score
With your permission, lenders will request a copy of your credit report from the three major credit bureaus. Your credit is probably the most important factor to lenders. Lenders will view your credit to determine which loan programs you are qualify for.
Your credit report will let lenders know how responsible you are with paying your debts. They will view your credit report for unpaid collections and past due accounts. If your credit report list unpaid collection or past due accounts, your lender will request for you to pay the accounts or deny your request for a home loan. Some lenders determine the loan programs you qualify for based on your FICO score. Normally, they will request your score from each of the credit bureaus. Based on the three scores, either the highest of the three or the medium of the three will be used to determine your eligibility.
Most lenders will view your current debt as a negative. If you have a significant amount of debt, you will likely qualify for a reduced loan amount. Most lenders prefer your debt to be less than 30% of your income, including your mortgage.
It is important to remember every lender is different. You may not meet all factors and some you may out shine than others. Research lenders in your area and find a lender whom you feel will meet your needs. You should always verify the reputation of a lender before choosing one. There are lenders who specialize in working with individuals with poor credit; also, there are lenders who specialize in working with individuals with superb credit. If you have outstanding credit, your options of lenders will be broad; however, carefully choose a lender.
10 thoughts on “Basic Mortgage Tips for First Time Home Buyers”
When buying or selling a home, having a realtor is often a big help and it takes a lot of the burden off of you.
I totally agree that the very first thing you should consider when buying a house is how much you can afford. I’ve been helping my mom house-hunt, and we made the exact same mistake you mentioned. We found a house that she absolutely loved but soon realized that at its current price, they simply couldn’t afford it. However, now we know what types of things we’re looking for and have a better idea of their budget, so hopefully we’ll be able to find a good fit soon!
You mentioned that you need to determine what type of mortgage you want to take out if you are happy with the amount that you can borrow when it comes to buying a home. My husband and I have been thinking about buying a home for a while now so we will have to keep these tips in mind. Hopefully, we can find a great home for a great price!
I appreciate your tip on how you need to look into your credit history before you get a home loan. It would seem that you would want to be sure that you have a good history and score to get the best mortgage possible. I’m looking to buy a home so before I get a mortgage I’ll have to consider my credit history.
A lot of people are asking me about mortgage. I think it’s a very important topic to tackle.
Nice to know that your providing this information.
Mortgage is a very interesting topic to tackle. Not everyone has the knowledge on it. Nice to know that your sharing this information.
Thank you for talking about the importance of paying attention to your debt when buying a home. It makes sense that doing this can help you find something you can afford and a company that can provide a proper loan. I can see how anyone looking into this would want to make sure they take the time to do their homework and consult with a real estate agent in order to get the best results.
Thanks for the information on mortgages! My wife and I really want to buy a home this year, but we aren’t familiar with the mortgage process yet. Thanks for mentioning to take into account all of the monthly payments that come with a home, like utilities and other similar costs. We will be sure to factor those in.
I read your article this is good. This is really useful information for me because I am planning to buy a home in few months but I am not familiar with the mortgage process. Thanks for posting such a nice article.
I didn’t know that there were 3 scores that were reported for your credit score. I started buying on credit a few years ago and I hope that comes in handy for a good credit history. My wife and I are trying to refinance our mortgage and would probably need good credit to drop the price.