Home Buying Basics
I briefly wanted to run down the basics of purchasing a new home – I am going to assume that you will be a First Time Home-Buyer, so I will be as detailed as possible.
The first thing that we do is what we call a Pre-Qualification Application – this is to determine not only if the applicant qualifies at this time, but also the amount they qualify for, or if they don’t qualify at this time - what it will take for the applicant to qualify in the future (and how long that might take)
During this Pre-Qualification (it only takes about 15 minutes and can be done in person, over the phone, or through ONLINE APPLICATION)... we primarily are looking for 3 things:
- Credit Qualifying – this is the most important piece, as everything starts with the credit report and credit history – the first thing of course is the credit scores – the minimum that we need is a 580, but the higher the score of course the easier the processing aspect of the loan. We also look for previous collections, bankruptcies, foreclosures, etc… the higher the score however, the less those things are scrutinized.
- Income Qualifying – this also encompasses work history; typically a 2-year work history in a same or similar field is necessary but there are some variations on that (such as someone who might be starting a new career and was in school the previous few years working towards that career)… then there is the aspect which is called Debt-to-Income Ratio, this is very important. This is the calculation of a person’s gross monthly income divided by the current monthly debt obligations (Car Payments, Credit Card Bills, Student Loan Payments, etc..) along with the proposed monthly mortgage payment. In most cases we want this calculation to be in the neighborhood of 45%..... this may be a bit confusing at this point, but bottom line – the less debt you have currently presents a better chance of getting Pre-Qualified J
- Assets – are the funds available to pay the closing costs that is required to purchase. There are many misconceptions about how much is required to purchase a home, the most common is that it takes a 20% Down Payment (meaning 20% of the Sales Price of the home) this is not true at all, in fact some loan programs require NO DOWN-PAYMENT but the most utilized loan programs (FHA and Conventional Loans) require as little as 3.5% and 3.00% down respectively. Another misconception is that the Down Payment is the only cost involved, that also is not true – there are roughly 8-10 entities typically involved in the Home-Buying process (Lenders, Title Company, Appraisers, Real Estate Agents, Inspectors, Surveyors, etc… etc…)… we at Service First Mortgage are committed to being 100% up front with our clients in the very beginning about the entire cost involved so that there are no surprises at Closing and the client is adequately ready to buy a home from a financial standpoint. Also keep in mind there are several first time home buyers programs and down payment assistance programs to help lower the costs – which we can discuss further.