Buying your first home is an exciting milestone in your life. But it’s also one that requires lots of preparation, research and paperwork.
Here are some basics you need to know before you take the plunge that will help make the process go faster and easier when you do find your dream home.
Your credit score is key. If you don’t know it, obtain a copy of your credit report. The higher your score, the lower your interest rate. Ideally, you should be using less than a third of your available credit for the best possible score. If your score needs improving, you should start the process at least six months before beginning your home search, according Bankrate.
It’s also important to know your monthly income compared to monthly expenses, otherwise known as cash flow. Bankrate suggests tracking your spending for a few months to get an idea of how much of a mortgage payment you can comfortably make. Calculating debt-to-income ratio — called the front-end ratio — including a down payment (usually 20 percent), should give you an idea of how much of a mortgage you can afford. Typically, housing should cost no more than 28 percent of gross monthly income. The back-end ratio, which shows all monthly debts, should ideally be no more than 36 percent, but can be more in some instances.
Self-employed or those whose jobs are straight commission may have a more difficult time getting a loan than those earning a regular paycheck, and will likely need to prove two years worth of income.
Requirements for obtaining a mortgage are usually W-2s from the last two years, tax returns, two months’ worth of bank statements and the last 2 paycheck stubs.
ReMax Real Estate Concepts
120 N 2nd Avenue West
Newton, IA 50208