When Should You Start Looking at Houses for First Time Homebuyers?
First-time homebuyers are understandably eager to start the buying process. But looking for a property before you're ready can trigger disappointment if you can't qualify for a mortgage loan. There is a right time to start looking at houses. Before meeting with lenders and getting excited, take steps to make sure you're ready to buy a house.
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Raise Credit Score
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One aspect of preparing for the homebuying process involves making sure you have a credit score that justifies a home loan approval. Credit score minimums vary, and there are programs for people with low and high scores. Ideally, you want a score 680 or higher to increase your mortgage options and help you get a good mortgage rate. But if you're recovering from a bankruptcy or foreclosure, you can qualify two or three years after the incident for an FHA home loan with a 620 credit score. A good payment history is key to building a better score and getting approved.
Adequate Income
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Being able to afford a house is another big factor in getting a mortgage loan. Spending the majority of your income on house payments does not leave a financial cushion, and you may have difficulty paying other expenses. To prevent this, lenders will review your income and based on your income, they will approve you for a mortgage loan that's no more than 28 percent of your gross monthly income (30 percent with FHA home loans).
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Mortgage Fund
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A savings account reserved for mortgage-related expenses such as closing costs and down payments will be helpful when applying for a first-time home loan. First-time homebuyers do not have another property to sell, which could provide money to pay closing costs and meet down payment requirements. Thus, you will need to save at least 3.5 percent for a down payment, and around 5 percent for closing costs.
Reduce Debt
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Because a mortgage loan can potentially increase your monthly expenses, the time to reduce debt is before you make a home purchase. Plus, lenders factor in your debt payments when deciding a mortgage amount. The more debts you owe, the less money you're able to acquire for a home loan. As a whole, monthly debt payments (including the mortgage) should not exceed 36 percent of your income. Take time to pay down debts or completely eliminate credit cards and loans before getting a mortgage and looking for a house.
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References
- Photo Credit house image by Brett Bouwer from Fotolia.com
