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2024-09-07
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How to Own Your First Home
2017-04-24
10 steps to Your First Home
1. Assess Your Financial Situation
Determine how much you can afford to spend on a home. Consider your income, expenses, savings, and any debts you have. Take into account additional costs like property taxes, homeowner's insurance, maintenance, and utilities.
2. Save for a Down Payment
Start saving for a down payment, which is typically between 3% to 20% of the home's purchase price. The larger your down payment, the lower your monthly mortgage payments will be. Look into down payment assistance programs that may be available in your area. A great way to save is with a Certificate of Deposit. If you know when you’re going to move, Texas Bay offers flexible terms to fit your needs and will help your down payment grow even faster!
3. Check Your Credit Score
Your credit score plays a crucial role in determining your mortgage eligibility and interest rates. Aim for a good credit score by paying bills on time, reducing debt, and correcting any errors on your credit report. Read our blog post, Understanding Your Credit Score for more information on how different actions affect your score.
4. Get Pre-Approved for a Mortgage
Before you start house hunting, get pre-approved for a mortgage with Houston’s #1 Mortgage Team. This will give you a clear idea of how much you can borrow and help you narrow down your search for homes within your budget. Texas Bay offers a locked-in rate for 60 days, so take advantage!
Very Important - Once you are Pre-Qualified Do Not Make Any Purchases. Do not buy furniture, cars, RVs, boats, jet skis, appliances, etc. Do not make any new purchases on credit or with your cash reserves. A purchase can affect your credit score or debt-to-income ratio and kill the purchase of your home. This is a mistake several first-time home buyers make. They go and buy or lease a car a week before closing. After going through this whole process, they can no longer buy the home due to this purchase.
QUALIFYING FOR A FIRST MORTGAGE
Income and Employment: Lenders evaluate your income to ensure you have the financial means to repay the mortgage. They'll look at your employment history, salary or wages, bonuses, commissions, and any other sources of income. Consistent and verifiable income is essential for mortgage approval.
Debt-to-Income Ratio (DTI): Your DTI ratio compares your monthly debt payments to your gross monthly income. Lenders use this ratio to gauge your ability to manage additional debt, such as a mortgage payment. Typically, lenders prefer a DTI ratio below 43%, although some may accept higher ratios depending on other factors.
Down Payment: The down payment is the upfront cash payment you make toward the purchase price of the home. Most lenders require a down payment, with conventional loans typically requiring 0% to 20% of the home's purchase price. Texas Bay offers qualified first-time buyers up to 100% loan-to-value (LTV) of the home. That means no down payment is required for those who qualify!
Assets and Reserves: Lenders may ask for documentation of your assets, such as savings, investments, and retirement accounts. Having sufficient assets and reserves can strengthen your mortgage application by demonstrating financial stability and the ability to cover unexpected expenses.
Credit History and Payment History: Lenders review your credit report to assess your credit history and payment behavior. They look for a consistent pattern of responsible borrowing and timely repayment of debts. Negative marks on your credit report, such as late payments or bankruptcies, can impact your mortgage eligibility.
Employment Stability: Lenders prefer borrowers with stable employment histories. Consistent employment and income over time indicate financial stability and the ability to maintain mortgage payments. However, lenders may consider alternative sources of income, such as self-employment or freelance income, with appropriate documentation.
Documentation: Be prepared to provide documentation to support your mortgage application, including pay stubs, tax returns, bank statements, and employment verification. Complete and accurate documentation helps streamline the underwriting process and improves your chances of approval.
Loan-to-Value Ratio (LTV): The loan-to-value ratio compares the loan amount to the appraised value of the home. Lenders typically prefer lower LTV ratios, as they indicate less risk for the lender. A lower LTV ratio may result in better loan terms and lower interest rates.
5. Find a Home
Research Neighborhoods and Homes: Consider factors like location, school districts, amenities, and property values when researching neighborhoods. Make a list of your must-haves and nice-to-haves in a home, such as the number of bedrooms, yard size, and layout.
Work with a Real Estate Agent: A real estate agent can guide you through the home-buying process, help you find suitable properties, and negotiate on your behalf. Choose an agent who is experienced, knowledgeable, and responsive to your needs.
Make a List of Your Needs and Wants: Identify your priorities and preferences for your first home. Consider factors like location, size, number of bedrooms and bathrooms, amenities, school districts, and commute times.
Evaluate and Compare Properties: Assess each property based on your needs, wants, and budget. Consider factors like location, condition, layout, potential for renovation or customization, and resale value. Keep track of properties you're interested in and compare their features, prices, and amenities.
Make an Offer and Negotiate: Once you find a home you like, make an offer through your real estate agent. Negotiate the price, terms, and contingencies, such as home inspections and repairs, to reach a mutually acceptable agreement with the seller.
6. Shop for Homeowners Insurance
Homeowners insurance is required on homes that are financed. Your lender will tell you what types of insurance they require for the mortgage loan. Texas Bay Insurance Group makes this process easy! Flood insurance is usually not that costly, but if a disaster happens and you do not have it, then you will have to pay out of pocket for the damages. Some coastal areas will require flood insurance.
7. Complete Due Diligence
Before closing on the home, conduct inspections to assess its condition and identify any issues that need to be addressed. Review all documents carefully, including the purchase agreement, title report, and disclosure statements.
8. Secure Financing
Finalize your mortgage loan by providing the necessary documentation to your lender and completing the underwriting process. Be prepared to pay closing costs, which typically range from 2% to 5% of the home's purchase price.
9. Close on the Property
Sign the necessary paperwork to transfer ownership of the home from the seller to you. Pay any remaining closing costs and fees, and receive the keys to your new home.
10. Move In and Enjoy
Once you've closed on the property, it's time to move in and make your new house feel like home. Settle into your new neighborhood, explore local amenities, and take pride in homeownership. Read our blog post, Saving Money for Your Move: A Moving & Storage Guide for tips on making the most of your move.
Remember that buying a home is a significant financial decision, so take your time, do your research, and seek guidance from professionals along the way.
FAQs
Q. What is a First Time Home Buyer?
A first-time homebuyer often refers to someone who has never purchased a residence before (obviously). But in some contexts, the definition is actually much broader, referring to someone who simply has not owned a home for at least the previous three years.
Q. What is a reasonable debt-to-income ratio when buying a home?
A. Generally, aim to stick with the 28/36 rule when buying a new house. That means not more than 28 percent of your gross monthly income should go to your mortgage. And with the mortgage in play, 36 percent of your gross monthly income or less should go to your overall debt. Managing your debt and ensuring your finances can handle your mortgage get extra important as a first-time homebuyer, so do your due diligence here.
Q. How can I calculate how much house I can afford?
A. You can determine how much house you can comfortably afford by using Texas Bay’s Mortgage Qualifier calculator. It lets you enter your annual net income either the purchase price you can afford, monthly payment amount, or
Q. What counts as proof of employment?
A. Paystubs and W-2s/1099s. If someone is self-employed, we will ask for their personal or business tax returns.
Q. Is there down payment assistance if needed?
A. Yes, Texas Bay works with various down payment assistance programs and can help find a solution.
Q. What if I don’t find a house in the 60 days after pre-approval?
A. The rate lock can be extended for a small fee or you can get qualified with a new rate.
The journey of buying your first home is filled with excitement, challenges, and important decisions. By educating yourself, setting realistic expectations, and seeking guidance from professionals, you can navigate this process with confidence. Remember, your first home is not just a financial investment but a place where memories will be made and dreams will unfold. So, embrace the journey, trust your instincts, and enjoy the exhilarating experience of finding your perfect home sweet home.
Let Houston’s #1 Mortgage Team at Texas Bay walk you through the process of purchasing your first home.