Starting to Research Tips
If you’re just starting the path to homeownership, below are some tips that will help you succeed when
you’re ready to buy:
1. Check Your Credit and FICO Score
Cleaning up any errors on your credit report and increasing your FICO score now, will save you money when you start the loan process. The better your fico score, the lower your interest rate and better your loan options. Check out our FICO Score Tips for useful information that’s helped our borrowers.
2. Explore Your Type ofMortgage Options
There are many loan programs available. To help determine what mortgage fits your needs, check out What Mortgage is Best for Me to help you navigate through your choices.
3. Determine How Much Cash You Will Need, and Start Saving Early
A down payment of 20% is ideal, as it avoids the need for private mortgage insurance. Saving 20% can seem out of reach and fortunately there are many lower down payment options available. FHA financing requires only a 3.5% down payment. On a $375,000 purchase price you’ll need $13,125 for 3.5% down. Additionally, there are additional closing costs to save for, which are comprised of loan fees, title and escrow fees, and "prepaids."
4. Determine Your Maximum Purchase Price and Loan Amount
When looking for your first home, it’s important to determine how much house you can afford. Lender’s determine your qualifying ratio, which takes into consideration your total new housing payment plus your total monthly obligations then divided by your gross monthly income. Typically, this ratio should be less than 43%, but can go as high as 60% depending on a borrower’s income and credit profile.
Your total monthly housing payment consists of the following:
• Principal & interest payment
• Homeowner’s insurance
• Property Taxes
• Mortgage insurance (if putting down less than 20% down payment)
• Homeowner’s association dues (if a condominium or planned unit development)
Total monthly obligations include:
• Auto loans and leases
• Minimum credit card payments and installment loans and
• Student loans even if in deferred status (some rare exceptions apply)
• Court ordered alimony and/or child support payments
• Business debts if not paid by business account for 12 months (for self employed)
• Open/monthly accounts requiring payment in full each month- can omit in most cases
Visit our Advanced Affordability Calculator to help determine what you can afford. Once you have this
figured out, you’ll be able to determine how much money you’ll need to save.
5. Things to Consider when Shopping for Homes in your Price Range:
• Set your priorities.What’s most important to you, space or location?Will you be happier with a small home in your ideal location close to amenities, or are you willing to buy farther away to have more square footage?
• School districts affect property values. Even if you don’t have kids, living in a neighborhood with a top ranked school district will increase your home’s value.
• Find an experienced Realtor that knows the area and has closed numerous transactions representing buyers. If you’d like to find an agent with these qualities click here for prescreened realtor recommendations by area.
• Are there extra costs? Pay attention to home owner’s association fees, and the benefits you’ll receive from the HOA. Also, compare property tax rates as they can vary greatly between communities.
• Secure financing before falling in love with a house. To increase your success of an accepted offer, it’s important to get pre-approved first! Check out our Pre-qualified vs Pre-Approval vs Full Underwriting Approval page for additional information.