Tips for First Time Homebuyers
Buying a home for the first time can be a thrilling as well as a challenging experience because the person does not know what to expect. A known fact is that the credit score of the homebuyer is one of the most important issues when it comes to qualifying for a loan and the standards these days has become higher in terms of the score that the person needs and how it affects the cost of the loan. The person needs to analyze their credit report for errors, collection accounts, and collection accounts. The fact that the individual pays every bill on time does not necessarily mean that they have a bad credit score and something like the amount of credit that they are using relative to the credit limit available (credit utilization ratio) can damage the credit score. The truth is that the lower the rate of use the higher the credit score and ideally a first-time homebuyer should have a lot of credit available with less than a third of it already used. Repairing damaged credit takes money and time, and if the person owes more than lenders would prefer to see relative to their income and if the individual thinks that their credit score may need some work then they need to begin the credit repair process at least six months before shopping for a home.
The buyer needs to assess their liabilities and assets by analyzing how they spend money and if the person has money left at the end of each month. A first-time purchaser needs to have a good idea of what they owe and the amount of money that is coming in and an easy way to do this would be to track their spending for some months to see where their cash is going to. The buyer needs to comprehend how the lenders will view their home and that requires that the person becomes familiar with the basic elements of mortgage lending and some professionals like the self-employed or commission sales people can have a difficult time getting loans compared to other people.
In perfect conditions a homebuyer should know how much they can afford to spend on the mortgage before the lender informs them how much they qualify for. After calculating the debt-to-income ratio and considering the down payment the person will have a clear picture of what they can afford to pay upfront and on a monthly basis. There is a term called back-end ratio which shows the portion of income that covers all monthly debt obligations and lenders prefer that the back-end ratio is at most 36%, but there are other borrowers that get approved while having back-end ratios of 45% or higher.