While reviewing some market trends for 2017, two things jumped out at me:
-According to Realtor.com, first time homebuyers will account for 52% of all home buyers in 2017 compared to 33% in 2016.
-And the number one barrier in 2017 to home ownership shifts from a lack of inventory to one's ability to meet mortgage qualifications.
These two market trends appear to be intertwined. With such a substantial increase in new buyers entering the market, I will layout some tips dedicated to the FTHB's in a follow-up post, but first, let's discuss some basics on mortgage qualifications. Before we begin, I want to get the legal disclaimer out of the way now. I am not a mortgage broker, underwriter nor loan originator, so I recommend you to seek the professional advice from a loan officer if you are ready to begin the mortgage process. Below are some common questions I receive from buyers on a daily basis.
Credit - There is nothing more important than your credit when it comes to buying a home. The first thing a lender will do is review your credit report. All lenders have different guidelines and standards, but the bottom line is you need to be above a 640 credit score. If you haven’t established credit, or need to rebuild your credit, start now. Apply for a low balance credit card, but use it as you would a charge card. Charge small amounts such as a tank of gas, and pay it off in full each month as you get the bill. This goes without saying, but pay your bills on time month in and month out.
Income - Lenders want to see two consecutive years of employment history in a similar line of work. The exception to this is school. New graduates can use their time as a student as apart of this two year history.
Debt Ratio - This is your monthly debts (new mortgage, credit card, car note, student loan, etc.) divided by your monthly income. Most lenders want this number to fall in the 30-40%.
Down Payment - Save now for a down payment and closing cost. 37% of potential home buyers say their largest impediment to purchasing now is the down payment. The down payment varies with loan type, but you should at least expect to pay 3.5%-5% of the purchase price. If you are a Veteran (thank you for your service to our country), you may qualify for a VA loan with 100% financing to FTHB's.
Closing Cost - These are typically 3% of the purchase price. Although I work hard for my buyers to negotiate these costs to the seller side of the ledger, for budgeting purposes, and for the sake of this post, budget for 2%-3%.
There are many other factors that make up the mortgage qualification process, but the ones I listed above seem to be the most common questions I receive from new home buyers. Feel free to reach out if you need a recommendation on a loan officer or two. And when you are ready to buy your first home, call me or one of our agents to help get you in that dream home!