If you have finally decided that it’s time to purchase your first home, you may find that it’s difficult to know exactly what to expect during the home buying process. To ensure that the sales process goes smoothly without unnecessary stress, use our quick-start guide for first time homebuyers.
Check Your Credit Score
Your credit score is one of the most important factors lenders will look at when determining if you qualify for a mortgage loan. Not only does your credit score determine if you qualify for the loan, it also affects the interest rate you’ll get as well. Go over your credit score to ensure that there are no mistakes, unpaid accounts or collection inquiries.
Evaluate Your Cash Flow
How are you spending your money? Do you have plenty left over after bills are paid or are you living paycheck to paycheck? As a first-time homebuyer you should have a good idea of what your monthly cash flow is. Before deciding on purchasing a home, you should track your spending for at least 6 months to determine where your money is going.
You should also be familiar with how lenders view income – for example, those who are self-employed or a straight-commission salesperson may have a tougher time getting a loan.
Organize Your Documents
Before you apply for a mortgage, you have to document income and taxes. Mortgage lenders generally request two recent pay stubs and the previous two years’ W-2s, tax returns and bank statements from the previous two months. Knowing what you need to present to lenders before applying for a loan can help save loads of time.
Determine How Much You Can Afford
As a first-time homebuyer, you should know how much you could afford to spend on a home before the lender tells you how much you qualify to borrow. Calculate your debt-to-income ratio and factor in a down payment to determine how much you can afford both upfront and on a monthly basis.
There is no fixed debt-to-income ratio that lenders require, but it’s ideal to have no more than 28% of your gross monthly income be dedicated to your mortgage. Lenders also prefer that your monthly debt obligations be no more than 36% of your total monthly income.
Figure Out the Down Payment
Do you have the 10% percent for a down payment? Speak with mortgage lenders when you are starting the home buying process. Talk with friends, co-workers and neighbors to find out which lenders they used and if they enjoyed working with them. Ask them questions about the home buying process and what tips they may have for a first-time homebuyer that they wish they had been given.
Interested in buying your first home in Alabama? We can help be your guide to the sales process and finding a home that is perfect for you and your family. Contact one of our real estate agents at Jackson & Associates today. We look forward to working with you.