First Time Homebuyer Tips
Here are my first time homebuyer tips for getting mortgage approval. The Salem area real estate market has been heating up in recent years and many new homebuyers find it difficult to qualify for a mortgage. Lenders seem to have learned a lesson from the 2008 housing bubble and have tightened lending requirements. Fortunately, you can still take steps to qualify for your mortgage and get the best interest rates available.
My first tip for the first time homebuyer is to consult in advance with a good mortgage broker who will shop multiple lenders to find you the best mortgage opportunity. Contact me if you need a local area referral. Often, you can get referrals from trusted family members, friends or associates who have recent experience with local area mortgage brokers. By using my tips along with the advice of a mortgage broker you will be much more likely to qualify for your first home mortgage.
By: Loni Barrett
www.IBuySalem.com
First Time Homebuyer Advantages
The first time homebuyer is a buyer who has not owned a principal residence for at least three years. This means you have to meet this requirement in order to qualify for first-time homebuyers benefits. The first time home buyers program provides several first time homebuyer advantages that will ease the financial burden of your first purchase. As a first-time homebuyer you have some advantages put in place by the government.
One of first-time homebuyer advantages is the first time homebuyer tax credit. This first time homebuyer deduction offers a one-time refundable tax credit up to $8000 in additional income when you buy your first home through the first time homebuyers program. The State of Oregon has a comprehensive web page with more information about the Oregon residential loan program. The Oregon Bond Residential Loan Program provides a below-market rate to help eligible families increase their home purchasing power and lower their monthly house payments.
In summary, you may find substantial savings by buying a home through the Oregon Bond Residential Loan Program. As a first time homebuyer you may qualify for low down or no down payment financing, lower interest rates and possibly some assistance on closing costs. Lending requirements for first-time homebuyers are a bit more relaxed. A mortgage broker can help you sort out what is available for your specific situation.
Oregon First Time Homebuyer Program (Video)
More information: Oregon Bond Residential Loan Program
First Time Homebuyer Income Tips
Establish a solid income source at your job. Banks like stability. Generally, the banks like to see at least 2 years of income history. FHA loans (most likely for a first-time homebuyer with low down payment) may require at least 6 months at a current job if there are employment gaps. You may include any other sources that relate to home ownership such as alimony, child support, rental income and part time job income. Including these additional items will help boost your overall household income level for home mortgage qualification purposes.
First Time Homebuyer Credit Score Tips
First time homebuyers will generally need a credit score of at least 630. The closer your score is to 700+ the better. Higher credit scores will get better interest rates. Alternately, lower scores will get lower interest rates which can cost you tens of thousands of dollars over the life of a loan. Watch your credit using CreditKarma.com or a similar credit score monitoring service closely. Contest anything negative that you possibly can. Pay every bill on time.
Negative Information on Credit Score
Pay attention to any factors that negatively impact your credit score. If you have negative information on your credit score such as late payments, charge-offs, bankruptcies, collections, etc., you will obviously want to take action. Pay any delinquent accounts and keep them paid current. However, it is not always advisable to pay off charge-offs and some other negative accounts. I recommend speaking with a mortgage broker first, before paying any charge-offs or collection agency accounts.
Credit Usage
Pay down your bills. If your credit usage is high it will drag your score a lot more than you might think, even if all payments are being made on time. The banks will look at your total credit limit. Say you have a $10,000 credit limit. If you have $5,000 charged on the card then you’re using 50% which is too high. For the best credit score, you want your credit usage around 10% or less. That means low balances on any credit cards, loans, etc.
First Time Homebuyer Income to Debt Ratio
Be aware of your income to debt ratio. The fewer debts you have, the more of your income can go toward paying your mortgage payments, allowing you to afford a higher-priced home. Paying off or paying down all bills will help with your income to debt ratio. Most lenders want to see that you will be spending less than 28% of your pretax income on housing and 36% on total debt payments. This is not a hard rule and you may still qualify, but this income to debt ratio will be a good target to keep in mind as you prepare to buy your home.
Work with a Mortgage Broker in Advance
I always recommend meeting with a mortgage broker well in advance of your decision to purchase a home. Mortgage brokers will agree that they can help set you up for easier approval, possibly at lower interest rates, if you meet with them in advance and follow their recommendations. This was one of the best pieces of advice that I received when I was buying my very first home.
If you are utilizing the Oregon First Time Homebuyer Program, you will be directed to a list of authorized lenders. If you are qualifying for FHA, VA or conventional loans will may work with a mortgage broker in advance. Choose a broker who shops more than one company. For example, I would avoid going into Wells Fargo to ask for a loan. Instead, go to an independent mortgage broker who has access to a number of banks that lend on real estate.
Go in now and have them run a check on you. They can tell you exactly what you need to do to qualify and give you a prequalification amount you will be eligible to borrow for your home purchase. The mortgage broker can also discuss different scenarios if you foresee a change in your income or credit situation or if you want to consider a co-borrower such as your spouse.
First Time Homebuyer Tips: Down Payment
Start saving money for your down payment. I suggest preparing for the worst (paying the 5% down plus closing costs) just in case. Expect a down payment of 5% of the purchase price, plus a couple thousand for miscellaneous fees like the appraisal, inspection, etc. If you end up with more than is actually needed to buy your home then you’ll have some extra cash to buy furnishings or something else.
First Time Homebuyer Tips: Budgeting
Put yourself on a strict budget. Lock away some of your income to savings. You might consider selling unnecessary belongings and putting that income into your savings account. Work overtime. Lock it away and don’t touch it because you never know when the perfect deal will come along. You can also pull money from an investment account for your down payment but just be mindful of any tax consequences if you do so.
Private Mortgage Insurance
You will be required to pay Private Mortgage Insurance (PMI) if your down payment is less than 20%. PMI is calculated based on your down payment, credit score and size of the loan. While I see PMI as scammy on the part of banks, it is part of the system. You’ll either be required to put 20% down payment or carry PMI.
A PMI workaround is to try to buy your home so you will gain equity as quickly as possible. You should do this anyway! Perhaps a fixer-upper or just buying at the right price can be helpful. After making your payment for a year or more then you can qualify to refinance your home. If the appraised value is 20% more than the amount you are refinancing you can drop PMI.