Requirements for First-Time Homebuyers
First-time homebuyers may be nervous about the mortgage loan and buying process. Mortgage lenders do not give loans to everyone, and getting approved involves meeting specific lending guidelines. Doing research beforehand and knowing what to expect from a mortgage lender can help you qualify for your first home loan.
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Pay Bills On Time
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A history of paying your credit cards and other bills late may indicate future issues with paying your home loan on time. Lenders will check your credit report before approving you for a first-time mortgage, and if reports reveal a history of payment issues, lenders may deny your application. Paying bills on time not only shows that you can manage a home loan, but timely bill payments help improve your credit score. A score of 680 or higher can help you get a home loan.
Lower Credit Card Debt
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Debt-to-income ratios determine how much you can spend on a home loan. Lenders factor in how much you currently spend on debt payments each month (credit card minimums, auto loans and other loans). Based on this number, they decide on an affordable home loan. Ideally, total debts after receiving a home loan cannot exceed 36 percent of your gross monthly income. Paying a high car payment and other installment loans lowers how much you can spend on a house. Increase your purchasing power by paying down debts first, and then applying for a home loan.
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Two Years of Employment
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Accurate income and employment records also factor into getting a first-time home loan. First time homebuyers need at least two years of tax returns, paycheck stubs or a letter from their employer verifying length of time with the company and annual income. Failure to provide this information can delay the buying process.
Budget and Savings
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Previous homeowners typically sell their current residence and use proceeds from their sale to pay their closing costs and down payment on a new home loan. If you're a first-time homebuyer, you'll have to save this money yourself to qualify for a mortgage loan. Required down payments are around 5 percent of the mortgage loan, and closing costs can run as much as 5 percent of the mortgage loan. There are provisions to help cover closing costs expense. Lenders can roll the costs into the mortgage balance, or seller's can contribute a percentage to this cost. Putting money aside and lowering your expenditures can help you save for a down payment on your first home loan.
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