The homebuyer’s credit score is among the most important factors when it comes to qualifying for a loan these days. “In addition, the standards are higher in terms of what score you need and how it affects the cost of the loan,” says Mike Winesburg, formerly a mortgage planner with McKinley Carter Wealth Services in Wheeling, West Virginia. Scour the reports for mistakes, unpaid accounts or collection accounts. Just because you pay everything on time every month doesn’t mean your credit is stellar, however. The amount of credit you’re using relative to your available credit limit, or your credit utilization ratio, can sink a credit score. The lower the utilization rate, the higher your score will be. Ideally, first-time homebuyers would have a lot of credit available, with less than a third of it used. If you think your credit may need work, begin the repair process at least six months before shopping for a home.
So you don’t owe too much money and your payments are up to date. But how do you spend your money? Do you have piles of money left over every month, or are you on a shoestring budget? A first-time homebuyer should have a good idea of what is owed and what is coming in.
“You should understand a little bit about monthly cash flow,” Winesburg says. “If I were a first-time homebuyer and I wanted to do everything right, I would probably try to track my spending for a couple of months to see where my money was going,” he says. Additionally, buyers should have an idea of how lenders will view their income, and that requires becoming familiar with the basics of mortgage lending.
When applying for mortgages, homebuyers must document income and taxes. Typically, mortgage lenders will request two recent pay stubs, the previous two years’ W-2s, tax returns and the past two months of bank statements — every page, even the blank ones. Buying a home can take a long time, but knowing what you need and where to find it can save time when you’re ready.
Ideally, as a first-time homebuyer, you already know how much you can afford to spend before the mortgage lender tells you how much you qualify for. By calculating debt-to-income ratio and factoring in a down payment, you will have a good idea of what you can afford, both upfront and monthly.
It takes effort to scrape together the down payment. There are programs that can assist buyers with qualifying incomes and situations. “I’ve helped arrange assistance loans for $10,000, which are interest- and payment-free, and forgivable after five years. Although considered a loan, they’re more like grants. Other programs can provide up to $40,000 interest-free,” Winesburg says. Finally, speak with mortgage lenders when you’re starting the process.
Heritage Trust Home and Real Estate Lending offers members a wide variety of options. From first time homebuyers to rural housing loans, to lot/land programs and jumbo loans, it is our goal to work with members and find the right product to fit their individual needs. Our Home & Real Estate Professionals can walk you through the entire home loan process so you always know what to expect.
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