Buying your first home can be as exciting as it is intimidating. When you’re ready to make your first big investment, it should be a milestone worth celebrating.
Although it can feel overwhelming to comprehend the many tips and tricks out there for buying real estate, our professionals at Homefinity can help you prioritize and get started, allowing you to focus on what matters most – finding a home you love, with a loan you can afford.
The steps to get there are outlined below, from getting familiar with your own finances to learning what loans can help, and how to secure the most affordable home loan for your situation.
Where to start before you apply
Are you financially ready?
- Know your credit score.
Your credit score shows us how trustworthy you are financially. For a mortgage, we use it to determine your eligibility and what interest rate you will pay. This impacts what your monthly payment and the cost of your loan will be over time.
Scores can range from 300-850. The higher your score, the lower your interest rate. Credit score requirements can fluctuate, but we can typically find an appropriate loan program or assist you in improving your score. To learn more about your credit score and how it will effect your loan talk to one of our loan professionals.
Using a free site like CreditKarma, CreditSesame, or CreditWise can be a quick way to get an idea of how you’re doing with your credit. But, just keep in mind that when you go to qualify for your mortgage we’ll need to request your actual credit report and score, which will give us “official” credit scores and the full details of your credit history.
- Review your credit report
Your credit score is a summary of your full credit report, which includes details such as how long you’ve had credit, how many credit lines you have open, if you pay your bills on time, and how much of your available credit is being used, or how much monthly debt you carry.
Reviewing your credit report can help you understand areas where you could improve your score or to see areas that strengthen your chance of securing a lower-cost mortgage.
It’s also important to review your full credit report for accuracy, as differences in your score can mean significant cost increases to you over time. If you see errors, you’ll want to report them and have them corrected before applying for a mortgage.
- Have a stable income
In addition to considering your credit, when you apply for a loan, we’ll consider your monthly income and your debt-to-income ratio. Your credit score and the consistency of your income will have a larger impact than the actual dollar amount of your paycheck.
When you apply for a loan, you’ll need to show two to three months of pay stubs, your W2 tax forms, and any other forms of income, such as commissions, child support, or investment income. This will be used to prove whether you have a consistent and ongoing income to cover the cost of a mortgage.
From there, we’ll need to know your DTI ratio, which is your monthly expenses divided by your gross monthly income. If you have enough income to pay the added cost of a mortgage, you are more likely to get approved. A DTI ratio of under 50% is commonly accepted. If your DTI ratio is lower than that, you might be able to borrow a larger amount. If it’s higher, you might have trouble getting approved or might get approved for a lower amount than you wanted. In this case, it’s best to see where you can pay off debts and earn more income to improve your ratio. To learn more about your DTI ratio and how it will effect your loan talk to one of our loan professionals.
Qualifying DTI ratios can vary by the loan program, but typically the lower this ratio the better. A lower ratio is better in terms of risk, but it won’t actually improve the terms of your mortgage.
- Calculate how much you can afford for a down payment
The down payment for a house can range from as low as 3% to as high as 20%. If you want to purchase a $200,000 home, that could mean a payment upfront of anywhere between $6,000-$40,000, depending on your loan. With this wide range, you’ll want to understand what loan options you’re eligible for before deciding how much home you can afford.
Typically the more you can put down, the cheaper your monthly payments will be. If you put less money down, then you may take on higher monthly payments to cover costs such as mortgage insurance premiums.
Leading up to purchasing a house, you’ll likely want to set aside money for a down payment, such as by saving a percentage of monthly income, saving tax returns, or saving work bonuses. Knowing what you can save will help you understand how much you can put down.
Do you qualify for special programs?
There are several special circumstances and government programs that can make your home purchase more affordable. Learn whether you’re eligible.
- If you’re active duty or a veteran you can use your VA benefit
- If you need a low down payment an FHA loan might be the best fit
View our Find a Loan page to see if there is a better fit for your situation.
Outside of these specific situations, it’s common for first-time homebuyers to find that they qualify for a conventional loan.
What is the difference between an FHA and a Conventional loan?
With federal assistance, we can provide an FHA loan, which allows you to get approved even if you have a low income, credit score, or down payment. The Federal Housing Administration provides insurance to make this possible, as loans like this would otherwise be a riskier investment for lenders.
- Great for first-time homebuyers
- Down payment as low as 3.5%
- No-closing-cost option
- Gift down payments allowed
- Typically, a credit score of 620 or higher for a down payment as low as 3.5%
- Home being purchased will be your primary residence
- A required home inspection that meets minimum property standards
- A mortgage insurance premium paid at closing and monthly mortgage insurance payments, likely for the life of the loan
- Depending on location, typically for a loan no larger than $314,545 to $726,525 for a single-family home
Although a higher credit score is needed to qualify for a conventional loan, it presents more flexibility for determining your down payment, closing costs, monthly payments, and length of your mortgage.
Unlike FHA loans, conventional mortgages are not backed by the government. Instead, they meet the standard down payment and income requirements set by Fannie Mae and Freddie Mac, which help fund the US housing market. Conventional loans also follow limits set by the Federal Housing Finance Administration (FHFA).
- Most common loan for homebuyers
- Down payment can be as low as 3%
- No out-of-pocket closing cost option
- Choose fixed or adjustable-rate
- Options for 15- or 30-year terms
- Credit score requirements can fluctuate, but we can typically find an appropriate loan program or assist you in improving your score
- Down payment of 3% or more, with 5-10% being typical
- Monthly mortgage insurance payments required if the down payment is less than 20% until your loan-to-value ratio reaches 80%
- Depending on location, typically for a loan no larger than $510,400 to $765,600 for a single-family home
How does Homefinity work with you?
Now that you have some background on how your finances affect your mortgage and what types of loans are available, let’s find out what will work specifically for your situation. Homefinity’s professionals work with you from start to finish to secure the loan you need.
- With a phone call to our loan professionals or a convenient online form, you can start the application process, where we’ll ask questions about your credit and finances to learn about your needs.
- Your information helps us make recommendations on what loan options will work best for you, such as whether you qualify for an FHA, 30-year Conventional, or 15-year Conventional loan. We’ll discuss the options with you and any questions you have about your situation.
- Once you feel comfortable with choosing your loan, we’ll help you through the approval process. With approval, we can lock in your interest rate so it won’t fluctuate throughout the home-buying process.
- As you head toward closing your loan, we’ll guide you through every step, updating you at each point in the process with clear details and next steps. Your dedicated loan officer can answer your questions at any time.
- When you’re ready, we can close your loan on the day, time, and place that works best for you so you can get into your new home.
Get Started. Make it home.
Connect with a dedicated loan officer to discuss your options for buying your first home. Apply online or over the phone to start the approval process so that you can feel comfortable with your loan when buying the home you love.