8 essential tips for buying your first home

Despite frigid weather that slowed real estate sales and a market that could use a bit more inventory, the U.S. Department of Commerce recently announced that winter housing sales across the country are up 5.3% from last year.

Mortgage rates remain low and the Associated Press reports “that sales should continue to make progress as the recovery from the housing bust and Great Recession is entering its sixth year.”

 

Are you looking to buy your first home? Here’s how to ensure the process goes smoothly:

1. Know how much you can afford. While there’s not a fixed debt-to-income ratio that lenders require, the general rule of thumb states that no more than 28% of your gross monthly income should be devoted to housing costs.

Calculate your debt-to-income ratio and factor in the cost of a down payment (generally 5% to 20% of the price of the home). These numbers will give you a good idea of what you can afford.

2. Check your credit. The Consumer Financial Protection Bureau reports that 50 million consumers now have free access to their credit scores from annualcreditreport.com. Remember – just because you pay your bills on time each month doesn’t necessarily mean you have stellar credit. Check your score and understand why you are losing credit points.

3. Know the market. The asking price for a house may not always be indicative of its true value. Take the time to research your market and learn the selling prices of other, similar properties. Websites like Trulia.com and Zillow.com can help.

4. Get prequalified. Mortgage prequalification helps expedite the closing of your purchase – a process that can sometimes linger for months.

5. Organize documents. It sounds basic, but it’s crucial to get your paperwork in order before getting into the home purchasing process.

“Mortgage lenders may request two recent pay stubs, the previous two years’ W-2s, recent bank statements and tax returns,” notes expert Floyd Waters. “Buying a home can take a long time, but knowing where to find everything you need will save time when you’re ready.”

6. Calculate an appropriate down payment. The general down payment for first-time homebuyers is 5% to 20% of a home’s list price. There are certain programs that accept 0% to 3%, as well. This payment will immediately add equity to your home as well as lower monthly payments.

Does 20% seem prohibitively high? Don’t abandon your home-buying dream just yet.

“Many first-timers don’t have the cash to put up 20% of a home’s value,” says Robert Walters, chief economist and vice president of the Capital Markets Group. “No need to worry. Mortgage officers will be able to find alternatives that work for you and your situation.”

7. Explore specialty home loan programs. Some home buyers may have difficulty meeting the strict credit score requirements and hefty down payment demanded by traditional mortgages.

Explore Northwest alternatives to open other doors toward homeownership:

Heroes Loan

  • This program gives active military members, military reservists and honorably discharged veterans access to reduced bank fees, competitive mortgage rates, down payment options as low as 3% and a waiver of private mortgage insurance up to a 90% LTV.

FHA Loan

  • With an FHA loan, you can secure a home with as little as 3.5% down. The Federal Housing Administration helps make homeownership a reality with flexible down payment options and no income restrictions.

Home Possible Loan Program

  • Through a partnership with Freddie Mac, Northwest offers the Home Possible loan program, featuring low down payment options, as low as 3% and fixed rate options with terms up to 30 years.

USDA Loan

  • The United States Department of Agriculture (USDA) offers home loans for borrowers living in eligible rural areas with no down payment required.

Hometown Loan Program

  • We have loan programs designed for first time homebuyers and those who have limited funds for a down payment. Our Hometown loan program includes the First Time Homebuyer loan program and Affordable Home loan program. These programs require as little as 3% down. 

8.  Get your prospective home inspected. There’s no substitute for a home inspection completed by a trained professional. Home inspections may reveal defects that the seller did not disclose (or even know about). A home is one of the biggest investments of your life – make sure you have a solid foundation, literally and figuratively.

The mortgage lending experts at Northwest can help you achieve your goal of homeownership. Visit your local Northwest office or call 1-888-884-4626 to discuss your mortgage needs.