When making a first time home purchase, often borrowers do not know what to expect and are not financially prepared for this large commitment. With many confusing steps and various complicated details, it comes as no surprise that first time borrowers may need some advice for their first home purchase. Here are five questions to ask yourself before committing to a home purchase:
Mortgage payment affordability is easily the most essential factor of homeownership when securing a mortgage loan. Borrowers should calculate and anticipate their monthly mortgage payment costs to determine whether or not this debt will be manageable under their current budget. If you cannot afford conventional financing due to expensive mortgage payments, consider securing an FHA mortgage or other government-backed financing option.
In order to acquire a home loan, a borrower must prove their reliability to his or her lender, who will determine whether or not to fund the loan based on the borrower’s various criteria, especially with regards to credit history. Accordingly, potential homebuyers will need an adequate credit score to qualify for a home loan; the minimum acceptable credit score may vary, both from lender to lender and based on the borrower’s intended loan program. If you do not qualify for a conventional mortgage loan, consider FHA financing or a VA home loan; these government-backed programs carry lenient underwriting, allowing borrowers with lower credit scores to not only qualify for the loan, but also for advantageous mortgage rates. However, borrowers with higher credit scores will have access to the lowest mortgage rates available.
Often, first time borrowers are caught off guard by the fees involved in loan acquisition and do not have sufficient cash in reserve to cover these unanticipated charges. As such, prospective homebuyers should always keep some money set aside for the home purchase process. With these funds, you can make a larger down payment to secure a more advantageous mortgage rate and lessen the total cost of the loan. Alternatively, you can apply these savings toward the closing costs of the loan and other financing expenses which borrowers incur during loan acquisition, such as mortgage insurance. Furthermore, cash reserves can be utilized in an emergency for borrowers who may not be able to afford a mortgage payment when income is tight.
As with closing costs, many first time homebuyers fail to anticipate the sudden costs of maintenance and property taxes, as these charges do not pertain to those renting. Of the two, maintenance typically is most unexpected; as such, borrowers should be prepared to invest thousands of dollars into their homes if need be during the coming years. Borrowers planning on making any changes or improvements to their home through construction or remodeling should also expect to invest a significant amount of money in their property.
While many may deem this a lifestyle consideration, the length of time which a borrower intends to reside in a property can greatly affect his or her finances. For instance, if a borrower must sell his or her home within a year or two, he or she will not likely make their money back and will most likely take a loss. As such, if you do not believe yourself capable of living in the home or area for a minimum of five years, it is recommended that you do not purchase the property.
Typically, a solid work history of about two years is best for approval. This is not to say that you can’t get approved without two years of work history, but employment longevity and stability will look much better than a string of jobs that lasted for six months in different occupations.
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