One of the most frequent phrases I hear from aspiring First Time Home Buyers is “I want to Buy a House, but I don’t know where to start”
I get it… Home ownership is a foreign concept to more people than you think, and sometimes the hardest part about getting started is knowing where to begin. Not only is it my passion, but as a Real Estate Advisor, It’s my duty to educate the public on the process and successfully equip them to become homeowners!
I’ll share with you some highlights from the initial conversation I have with EVERY potential buyer to prep them for a mortgage Pre-Approval.
Employment:
First things first, if you’re looking to take out a mortgage, lenders require that you have at least two consecutive years of steady work history for either W-2 or, for Self-Employed 2 years of 1099 and 2 years of tax returns. Some occupations allow you to claim loss or deductions on your tax return which ultimately lowers your taxable income, this is especially true with self-employed individuals. Whenever this is done, lenders will look at your income after all of the deductions when considering your mortgage eligibility.
Credit Score:
While it is important to stay on top of your credit score at all times, it’s especially vital to know your credit score and exactly what is on your credit profile when preparing to purchase a home. Some lenders can get you approved for a mortgage with a credit score as low as 580, however I don't recommend. Your interest rate will be increasingly higher than market rate thus making you eligible for a lower mortgage at a higher price. If you're interested in taking advantage of Down Payment Assistance programs, lenders may require a credit score of 640, and may have a different overlaying score requirement as well, some are 650.
Credit Profile:
While your credit score and credit profile are linked, they are not the same thing, some folks I've talked to get those two confused. Your profile has to do with the items listed on your report and what is being reported to the credit bureaus. Lenders take into account some of the following:
Debt to income ratio
Items in collections
Age of credit
Number of inquiries
Bankruptcies
Late payments
Student loans
Repossessions
foreclosures
Savings:
Long gone are the days when we needed 10-20% down to purchase a home. Government backed FHA loans only require 3.5% down and some Conventional loans only require 3% down. Additionally, there are Down Payment Assistance programs available to help with Down Payments if needed. Some programs allow home buyers to come to the table with as little as $1,000 or 1% of the purchase price down (whichever is lower).
While it is always a good idea to have reserve of funds saved for life's unexpected expenses, I always recommend having at the bare minimum $1,700 available to cover the costs of the down payment, inspection and appraisal.
There is more that goes into my Buyers Consultation meetings, these are a few tips to get anyone started on the path to home ownership.
For those ready to take the next step and schedule a private consultation feel free to reach out to me at 612-558-0369 or ProteaToles@EdinaRealty.com
HAPPY HOME-BUYING!