Buying your first home is exciting but can also be very scary!! People have different reasons for wanting to buy a home from needing a place to live to wanting a place to call your own. You can paint your walls, you can decorate, you don't have to worry about a landlord saying you can't do something. You also need to make sure you can make the payments so you can keep your home! Many potential homebuyers are a little surprised at what they need to buy a home. The most important thing you need to do is contact a loan officer and get a preapproval.
Here are some of the basics your lender will need to get your loan approved so you can buy a new home:
Assets: We need to verify the money you need for a down payment. We will use checking and savings bank statements and maybe 401K/IRA statements. If we are using retirement accounts for reserves (money left over after closing), you may need to show that the account can be liquidated. That doesn't mean you will liquidate it, but you have to have the ability.
Bank Statements: Make sure you save your bank statements, the lender needs the complete statement (if it says there are 5 pages, your lender needs all 5 pages even if it's advertising). If there are large deposits, we will need to document where the money came from.
Credit: You will need a credit history and a credit score of about 640 or higher. Many lenders require at least 640 for a minimum score. Ideally you want to have 3-4 tradelines on your credit report with a history of 2-3 years. New credit can lower your score.
Debt to Income: Most programs require a debt to income ratio of about 45%. If you are using a conventional loan with mortgage insurance, you need to keep your ratio under 45%. To calculate debt to income, you need to take your total monthly payments (credit cards, car payments, student loans, etc) into your gross monthly income.
Down Payment: You will need a down payment on most programs. VA and USDA rural development loans still allow for 0 down. FHA requires 3.5% as a minimum down payment. Conventional loans require 5% but there are a few special programs that will allow you to buy at 3% down as long as you meet specific requirements.
Make sure you are comfortable with your new house payment. If you feel you can't afford it, look for something that will allow a lower payment. Just because you can qualify for the payment, doesn't mean you want to spend the max you can qualify for. You are the one making the payment and you don't want to be house poor.
Buying a home is exciting and we try not to make it too difficult!! You may need more documentation but it's definitely possible to buy without 20% down and without an 800 credit score!! If you have questions, ask your loan officer. With home prices where they are and interest rates as low as they are, it's a fantastic time to buy!
