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Establish financial goals. Be realistic about your needs, your plans, and your financial capabilities. If you don’t have a budget, make one.
Find out what loan programs and loan type options are available to you.
There are many loan types available to you as a first time home buyer. You can take out a fixed rate mortgage, an adjustable rate mortgage, an interest only loan, or any other loan type. But you also have additional options.
One of the most common mortgage loan types available to first time home buyers is the FHA Loan, a government backed housing assistance program administered by the US Department of Housing and Urban Development (HUD). These loans are designed to assist first time home buyers who don’t have substantial equity to rely on and offer many benefits.
Determine how much you think you’ll need to borrow.
Based on the type of home you are looking for and the area where you plan to live, calculate a range of home prices and approach your lender with these figures. If you’ve already found the home you plan to purchase, you’re a step ahead, though it’s wise to plan and budget before you even begin your home search.
If you’re planning to take out an FHA loan, find out what the FHA loan limits are in your county. These limits establish the maximum amount you can borrow with an FHA loan.
Check your credit score.
Check your credit score before you even start looking for a home. There are reputable sites that allow you to check your credit score online FREE. If your credit score is bad, you may not be able to qualify for the mortgage you need. If you’re afraid you may not qualify due to your credit, take the time to repair your credit before you pursue a mortgage. It will be worth the wait. With your credit cleaned up, you’ll qualify for a lower mortgage rate, and this will save you tens of thousands of dollars over the life of your loan.
Check your credit and repair it if you need to.
Gather the documents you’ll need to prove your income and employment status.
This part is easy, assuming you’re stably employed and making enough money to cover your expenses. Gather the following:-
- Two months of pay stubs,
- Two months ofbank statements,
- W2form and Tax Return for the 3 last years.
- Social Security Card and
- Driver's Licence.
The exact paperwork you’ll need will vary depending on your lender. Different lenders may request different documentation. For the most part, though, these are the items you’ll need as a first time home buyer.
If you’re self employed, this step is a bit different. Ask the lender about the requirements.
Compare mortgage rates.
Get preapproved for a loan.
Preapproval is one of the most important steps to take. Preapproval is like a promise. The lender agrees to provide the borrower with the funds he or she needs to purchase a home, contingent upon the nature and value of the home. You’ll need to allow the lender to check your credit score, and you’ll need to provide proof of income and employment.
Once this is done, you can rest assured that you’ll get the mortgage you need as soon as you need it. This is a valuable step to take before you start searching for a home.
Know what the closing costs will be.
Obtain a Good Faith Estimate (GFE) from your lender as early as possible in the process. This document explains all fees and costs connected with the mortgage and provide a summary of the closing costs.
Secure your down payment funds.
Conventional loan require a down payment of at least 20% of the purchase price if you want to avoid paying for private mortgage insurance (PMI). FHA mortgage, require a minimal down payment of just 3.5% in most cases. This solution may solve the down payment funding issue. You can also ask friends and family for gift money that can be put toward the down payment price. Determine all your options before you make a final decision.