First Time Home Buyer Guide - Before You Purchase:
Evaluate Your Financial Preparedness.
Once you’ve determined you are emotionally ready to take the step of buying a home, the next step will be determining your financial readiness. Be sure to consider each of the following questions:
- Do you have a steady source of income?
- Do you have good credit history?
- Do you have sufficient funds for a down payment or another source of funds (i.e. family gift)?
- Do you have sufficient funds to cover closing costs and reserves? (if required)
- Have you evaluated how additional home expenses may impact your personal budget?
Save For Your Down Payment.
In most cases, your home purchase will require a down payment. Mortgage lenders traditionally require a down payment on home loans to qualify the borrower’s investment in the financial commitment.
Poli Mortgage has a number of first time home buyer programs available offering down payment options from 0% to 20%. These first time buyer programs include FHA, VA, USDA, as well as other conventional and government mortgage loan programs.
Decide If Purchasing a Home vs. Renting Is Best For You.
In today’s economy, with home prices and interest rates markedly lower than in previous years, it may be more affordable for you to purchase a home over renting.
Some advantages of home ownership include:
- Building up mortgage equity over time
- Deductible mortgage interest and property taxes (check with your tax professional for all available deductions)
- Contributing toward your own mortgage investment versus someone else’s
- Pride of home ownership
- Freedom to make internal and external design choices
Determine What You Can Afford.
It is important to determine the mortgage loan amount you can afford. As a general rule, your monthly housing expense should be between 28%-36% of your gross monthly income. In the mortgage industry this is known as the “front end ratio”. We’ve provided several helpful Mortgage Calculators to help you determine more about your personal circumstance.
Consider Your Credit Score.
A good credit score is an integral part of qualifying you for a home mortgage loan. If you do not know your credit score, your Poli Mortgage Loan Officer can help you by requesting a FREE credit report for you.
Credit Scores, typically known as FICO scores, are monitored by three national credit bureaus. Scores range from 300-850, with the best score being 850. The higher your credit score is, the more likely your lender will approve your loan. Just as important, the higher your credit score, the lower your interest rate may be. Most loan programs require a minimum FICO score of 640. The three credit bureaus most often determine your score based upon the following criteria:
- Your payment history
- The length of time your credit accounts have been open
- The number of accounts you have open and their balances
- The number of credit inquiries
- The types of credit used
When planning a home purchase, it is also critical to follow these guidelines to keep your credit report and rating as stable as possible prior and during your mortgage loan approval process:
- Pay all bills on time.
- Keep your account balances below 30% of your total credit limit
- Limit credit inquiries
- Do not accept cash advances toward your down payment
- Do not consolidate your debt
- Do not co-sign for others
- Do not make any major purchases
- Do not open any new accounts
- Do not close unused credit accounts
If you have little or no credit history, you will need to establish credit (more than one line) for at least 6-12 months and show a proven history of making payments on time prior to engaging with a mortgage loan company and/or real estate agent.
If you have poor credit (a score of 640 or less), you will need to work to improve your credit score. Your Poli Mortgage Loan Officer can provide advice on how to improve your credit score, and if needed, refer you to a credit repair company.
You can also visit the following page for more information about your credit score.