Overcoming the Most Common Obstacles to Buying your First Home
The prospect of owning a home has always been a sought after dream of
many people; however, the actual process of purchasing a home is often
fraught with obstacles. Learning what to expect and how to overcome
potential problems can make the path to ownership much easier and less
frustrating.
Perhaps the biggest mistake that many first time home buyers make when buying
their first home is not working with a real estate agent soon enough. Given the
multitude of decisions and tasks that must be handled from start to
finish, it's always a good idea to work with an experienced real estate
agent. Not only can an agent assist you in finding just the right home,
but he or she can also work with you to determine how much you should
pay and even negotiate the offer for you (read:
Why you need to find a real estate agent before buying a house?). In addition, an agent can
provide guidance throughout all of the many other steps that lead to
home ownership.
Prospective first time home buyers should also keep in mind that a down
payment is an essential in almost every instance when buying a home.
Only VA loans, which are loans that are available to veterans, allow a
buyer to purchase a home with zero down payment. All other mortgage
loans require a down payment. The two most popular types of home
mortgage loans are FHA loans and conventional loans. Both of these loans
require a minimum down payment of at least 3.5% and can range up to 10%
of the sales price, so start saving early to make sure you have a solid
down payment (Read
How to find the money for the home down payment?)
Another common problem that many prospective first time home buyers overlook is the
necessity of having a good credit score. That is even more important
today than in the past. For a FHA loan you need a minimum score of 620
and for a conventional loan you need a minimum score of 720. If your
credit score is below those two critical numbers you might still be able
to qualify for a mortgage loan but you will be subjected to much higher
interest rates, which can ultimately raise the price of your mortgage
note. Read
tips to improve your credit score before buying a home here!
It is also essential for first time home buyers to be able to meet lender ratios. Most
lenders will expect a home buyer to have no more than a 33% front-end
ration. This means that your mortgage payment, taxes and insurance
cannot total more than 33% of your monthly gross income. For instance,
if your monthly gross income is $5,000 then the maximum that your
housing should come to is $1,650.
The back-end ratio can be even more difficult to meet for some
prospective first time home buyers. You must ensure that the total of your housing,
insurance and taxes when combined with all of your revolving debt
payments does not exceed 50%, at the most, depending on your lender and
the type of loan that you obtain.
First time home buyers should also be aware of the Home Valuation Code of Conduct, also
known as the HVCC, which applies to all conventional and FHA
transactions as of January 1, 2010. While in the past lenders were able
to select their own appraiser that is no longer the case. Now, an
appraisal management company is able to choose an appraiser at random,
which means that he or she may or may not be familiar with the
neighborhood where you are buying and that can sometimes result in a
low home appraisal. If the appraisal does not come in at the value of the home
and the seller is not willing to adjust the price, the home buyer has the
option of paying the difference in cash or walking away from the deal;
provided they had an appraisal contingency as part of the contract.
Finally, you must make sure that you satisfy all loan conditions. The
process of loan underwriting can be daunting given the many demands that
a loan underwriter can make, including additional documentation, a
review appraisal, etc. You can help to avoid possible problems by
ensuring that you have not withheld anything regarding yourself or your
financials to your lender. Withholding any information can prove to be
time consuming later if you must go back and provide additional
documentation that was not originally disclosed. It can also put your
loan at risk for rejection.
The process of finding the ideal home and making your way through the
process of purchasing it does not need to be difficult when you know
what to look for and how to avoid possible problems from the outset.
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