So what should and shouldn’t you do when preparing to buy your first home? This can be a loaded question if you learn the hard way! I’ll keep it simple today with my Top 4 Tips. These basic principles revolve around credit, debt and education. Let’s dive right in!
1. Work on your credit
You get a better interest rate on a mortgage about every 20 point brackets. The difference of a 1/4 point or half a point is thousands of dollars over the life of the loan and can be hundreds of dollars on your monthly payment. Lenders use the middle score out of all 3 credit bureaus to determine your score. Working with an experienced lender who also does credit repair can really work wonders. One of the lenders I work with has saved my clients thousands of dollars by fixing their credit before a purchase, in a very short time!
Tip: You can pull your credit from all the credit bureaus for free once a year from www.annualcreditreport.com. Here you can get access to Equifax, Transunion and Experian.
2. Pay off your debt
Getting rid of those credit cards or any money owed is usually of the most beneficial things you can do to help you qualify for a mortgage. If your getting into a new house, you would at least want to have less bills after you get a new mortgage right?
3. Don’t make any major purchases
Getting a new car loan or racking up credit cards with new payments can really put a damper on your debt to income ratio.
What is your Debt to Income ratio? Easy, take all of your monthly revolving debt and divide it by your monthly income. For example, if you have only a $300 car payment and make $3,000 per month, your debt to income ratio would be 10%. This is great! Keep in mind utility bills and cell phone bills do not count towards your DTI ratio, they are looking for secured and unsecured debt. Student Loans are a whole other story and I plan on dedicating a whole page to this topic in the near future. Sign up to my newsletter to get notified when that article gets released and more blog posts like this!
Now depending on the type of mortgage you aspire to apply for they can require different debt to income ratios. VA Mortgages typically allow you to go up to 43% total debt to income including your new mortgage. FHA generally has the most relaxed terms and will allow you to go up to 50-58% in some cases. This plays a huge role in what you can get qualified for. You can read more about Mortgages available to NH Residents here.
4. Learn
Now is the perfect time to learn more about the home buying process and the different types of financing available to you. There are some great resources out there to help you along the way. Be sure to read up at your local housing authority website, in New Hampshire it is the New Hampshire Housing Finance Authority. Also visit sites like Realtor.com, The Mortgage Reports and Bigger Pockets for investors are all great places to start. I personally love the Bigger Pockets podcast if you are looking to learn more about investing. There are a lot of great and free podcasts about home buying and investing available.
Next step I would recommend is having a consultation with a Realtor. We are at your service and can definitely be a great free resource for any questions you may have. With all the connections we have from being in the industry we can surely point you in the right direction to set you up for success in buying your first home. Ask for a referral to a lender also. They play a huge roll in getting you into the right mortgage and program and can also help educate you on the process.
That is it for today, my top 4 tips for preparing to buy a home.
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