First-Time Homebuyer Guide
Purchasing your first home and obtaining your first mortgage will require patience, planning, and preparation. Prior to looking at homes, the first step is to be pre-approved for a mortgage. Many potential homebuyers start looking at houses before they are pre-approved. This is a huge mistake. It is essential for you to know what you can afford and if there is anything you need to do to get your financial house in order prior to buying a house. Many first-time homebuyers do not realize the amount that they could be pre-approved up to and that the terms and interest rate could change if they had higher credit scores or a larger down payment. Many lenders have debt ratio limitations based on credit, down payment, and other compensating factors. Most lenders have tiered pricing based on an individual's credit score and down payment. You may be able to increase your credit score quickly by paying down credit cards, disputing erroneous information on your credit report, or by paying collections. Also, if you have the ability to receive a gift to increase your down payment, your loan officer should be able to tell you how the gift would affect your buying power. After the pre-approval process, you'll have a much better idea of the total cost associated with buying a house. These costs include appraisal, home inspection, home warranty, first year's homeowners insurance, closing costs, pre-paid expenses, and down payment. The documentation typically needed for a mortgage pre-approval includes the following:
• 30 days pay stubs • Most recent two months bank statements • Last two years federal tax returns with all schedules, W2s, and 1099s • Two forms of government issued ID (Driver's license, Social Security card, Birth certificate, Military ID, or other Government ID)
Other documentation that may be needed includes:
• Bankruptcy schedules and discharge papers • Divorce and Separation Agreement • Child Support Agreement (with a copy of the birth certificate for the child's proof of age) • DD 214 (for Veterans) • Social Security or Pension award letters • Gifts (Copy of the gift check, proof of deposit into your account, and proof of donor ability)
For self-employed individuals the following may be needed:
• Year-to-Date Profit and Loss Statement • Year-to-Date Balance Sheet • Proof of Existence of Business • 12 months canceled checks on any personal debt that is paid through the business
There may be other documentation needed depending on your circumstances. After you become pre-approved for a mortgage you should then contact a reputable real estate agent to assist you in the home buying process. At this point, you can provide your real estate agent with a pre-approval letter showing your ability to obtain a mortgage. As a first-time homebuyer, you should take a personal assessment of your financial situation and decide what you are comfortable with for a mortgage payment per month. Typically, a lender will go up to 31% of your gross income for your mortgage payment. It is important to decide before you start looking at homes what you feel you could actually afford per month. By the time you get to the point where you are looking at houses, you should have your finances in order. Obtaining a full pre-approval will give you the peace of mind and control during one of the biggest purchases most people ever make. Now that you're pre-approved, you will be able to devote your time to find the right house for you and your family.
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