When it comes to buying your first home, there are a lot of things to consider. Often things like the location of the home, it's overall condition, and the asking price factor greatly into your decision. Getting financing for your first home is also something that you should consider carefully. Buying your first home is a major financial decision. Going through this process for the first time can also be stressful. If you are buying your first home, here are three things to keep in mind.
1. What You Can Afford
The first thing that you should do before buying a home is take a hard look at your budget in order to determine how much you can afford to spend on a mortgage. A good rule of thumb is that your mortgage payment shouldn't take up more than 28 percent of your monthly take-home income. If you have student loans or other large sources of debt, that number may need to be even lower. Your debt-to-income ratio is all of your debt payments divided by your monthly take-home income. If this number is higher than 43 percent, you may have trouble getting a mortgage.
2. Your Credit Score
Lenders look at more than just your debt and your income when deciding whether or not to approve you for a mortgage. Your credit score also plays a big role. For most conventional mortgages you will need a credit score of at least 620. If you have a lower credit score, a loan from the Federal Housing Administration, or an FHA loan, may work for you. You can have a credit score as low as 580 and qualify for an FHA loan. You can also delay buying a home and work on your credit score in order to qualify for a better mortgage.
3. Your Down Payment
When buying a home for the first time it's also important to consider your down payment. While some loans are available that require low or even no down payments, having a sizable down payment can still come in handy. Larger down payments signal to lenders that you are serious about home ownership and may help you get a better deal o your mortgage. Putting 20 percent or more down on a home loan also allows you to avoid the added cost of private mortgage insurance.
When buying your first home, there are plenty of mortgage lending services that can help you get financing. There are also a few things that lenders consider when determining whether or not to approve you for a mortgage. Your credit score and how much of a down payment you have are important when getting financing. Lenders also take into account your take-home income and how much debt you already have.
