First Home Owners Guide to Mortgages

Introduction

When you want to buy a home, you are faced with many decisions. As a first-time home buyer, the first is whether you are ready to buy. Finding the right first home is not always easy, and getting a first-time home buyer mortgage loan can be time-consuming and complicated. To help you decide if you're ready as a first-time home buyer, we'll take you through the steps a mortgage lender uses to decide if you qualify for a first-time home buyer loan. When you take out a loan, you sign documents saying you promise to repay the loan.

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When a mortgage lender makes you a first-time home buyer loan, it has determined that there is a good likelihood that you can keep that promise. The mortgage lender knows that it does not help you or the lending institution if you are given a loan but then, for any reason, cannot make the loan payments each month.

To decide if you will be able to repay a first-time home buyer loan, your loan officer will look at many different pieces of information about you. This process is called underwriting. This information shows how well you have repaid your debts in the past, whether you are likely to repay your debts in the future, and your ability to repay the mortgage and your current debts.

There are first-time home buyer program guidelines that help a lender look at these pieces of information about you. But it would help if you also remembered that these first-time home buyer guidelines are flexible because everyone's financial situation is different. If you are powerful in one area, it may help balance out another area in which you aren't quite as strong.

Go through the first-time home buyer questions below and test yourself. If you aren't ready to buy a new home now, you'll find we've included information that may help you qualify in the future. When you get to the end, you will have a better idea of whether this is the right time for you to buy a home or whether you need to work on improving your credit history, paying off existing debts, or saving more money.

Do You Pay Your Bills On Time?

How you paid your bills in the past gives a lender some indication of how you can be expected to pay them in the future.

When you apply for a first-time home buyer loan, you will be asked to list all your debts, the monthly payment amount, and the months or years left to pay the debts.

Your mortgage lender will order a credit report to verify the information you give and check on how well you have kept your promises to repay your debts. Credit reporting companies provide credit reports that make inquiries through a wide range of available sources of information: banks that may have given you a car loan, credit card companies, even gasoline companies, and department stores that offer credit cards.

It's important to disclose all debts and any difficulty you may have had in the past in repaying these loans. It's also important not to leave out any information about your money. Credit reporting companies have access to a great deal of financial information about you, making it available to lenders reviewing your first-time home buyer mortgage loan.

If you have previously owned a home, and your mortgage loan has been foreclosed upon within the last seven years, the foreclosure will be revealed on your credit report. A foreclosure on your records doesn't mean you can never buy another home. Your lender will want to know the reason for the foreclosure mortgage, and most prefer that three years go by before you apply for a new mortgage loan.

If you have declared bankruptcy within the past ten years, that also will be revealed on your credit report, and it will be helpful for you to explain the circumstances surrounding it. Lenders usually prefer you wait two years after the discharge of the bankruptcy before assuming a new large debt like a home mortgage loan. This gives you time to re-establish credit and show that you are again able to manage your financial affairs.

Sometimes, credit reports are inaccurate or give a misleading picture of past credit problems that have since been resolved. To check your accuracy, you can obtain a copy of your credit report. You can request a copy from a "credit reporting agency for a small fee or sometimes free." If you find any errors, you can take steps to have the report corrected.

If your credit report shows that you do not have a good credit history, and the information reflected is correct, you should probably delay trying to buy a home and take steps to improve your credit profile.

For example, you may have too many debts or pay some debts late each month. If so, you should work to bring your payments up to date and pay off some of your debts. Even if your debts are current, you may not be considered a good candidate for a first-time home buyer loan if you have made your monthly payment after the due date. After you have decreased the amount you owe and show a two-year history of making payments on time, you may be ready to begin looking for a home as a first-time home buyer.

How Is Your Job History?

This is important.

Having a steady job as a first-time home buyer helps you to keep your promise to pay back a mortgage loan. You will have steady employment if you have worked continuously for two years or more. A lender must know your job history, determining whether you qualify for a first-time home buyer loan. However, you do not have to have held the same job for two years to be approved for the mortgage loan. Job moves that result in equal or more pay and continuing to use proven skills are a plus for you. If you have worked continuously for less than two years, the mortgage lender will look for an explanation. There may be a good reason:

You may have been discharged recently from the military or just finished school. Your work may be seasonal, and you might have work gaps between seasons.

There may be other acceptable reasons why you have not been employed continuously for two years. For example, you may have been laid off because of a plant closing or an illness. Or you may be in a line of work in which frequent job turnover can be customary, but you have been consistently employed and have maintained a regular, consistent level of income.

If you have been fired for a cause such as excessive absences, have long gaps in your employment record, or have dips in your income level that are difficult to explain, you should probably delay buying a home until you can demonstrate that you have a stable work history.

Can You Afford To Pay a Home Mortgage Each Month?

If you pay monthly rent, you may be prepared to make monthly home mortgage payments.

Your monthly payment depends upon the amount you borrow, the interest rate, and the repayment period or "term." The shorter the term, the higher your monthly payment. For that reason, most first-time home buyers repay their mortgage over the longest term possible. Usually 30 years.

Do You Have a Credit History?

If you have never had any credit cards or taken out a loan through a financial institution, the various credit reporting firms may be unable to issue a credit report. In that case, you may be able to use "nontraditional" credit history. For example, you may be able to document that you pay your rent, telephone bills, or utility payments on time each month. You can put these records together yourself by making copies of canceled checks or showing copies of monthly bills that do not have any late charges. A mortgage lender may be able to help you put this information together.

Do You Have Money Saved For a Down Payment?

When you buy a home, you will need money you have saved for a down mortgage payment and closing costs.

The amount of the down mortgage payment may vary, but generally, you must make a down payment that equals at least 3 percent of the purchase price. You will also need money for closing costs. These costs can be expensive, depending upon where you live. Sometimes the property seller is willing to pay part of your closing costs on your mortgage.

The lender will want proof that you have saved the funds you will use for a down payment and part or all of the closing costs. If the funds are in a savings account, the lender will ask the financial institution to verify the amount and the length of time the funds have been in your account. The lender wants to ensure you are not borrowing all the money you will use for the down mortgage payment and closing costs.

Some lenders have programs to help first-time buyers. With some of these programs, you may be able to accept a gift from a relative or borrow a portion of the money you will need for the down payment and closing costs from a local non-profit organization or government agency. With others, you may get a grant or other first-time home buyer funds that you will not have to repay and can use to cover some of these costs.

If you do not now have at least a portion of the money saved for a down payment, this may not be the right time for you to try to buy a home. Instead, opening a savings account and putting away some funds from every paycheck would be a good idea. The longer you have accounts and the longer, and more consistently you have been able to save money, the better you will look to lenders when you are ready to apply for a mortgage. You may be eligible for a first-time home buyer program grant. This may make it easier for you to get a first-time home buyer loan than you normally would be able to save for the cash on your own.

Calculating Mortgage Loan Payments

Your mortgage loan payment will depend on how much you borrow, the loan's term (repayment period), and the interest rate.

If you know how much you need to borrow (the purchase price minus your down payment) and what the interest rate will be, you can use our Mortgage Calculator to find out what your monthly payment will be with a standard 30 year, fixed-rate mortgage. Note that this chart includes only principal and interest payments, not property taxes and insurance.

How Do Lenders Determine the Amount of the Loan You Receive?

When you first approach lenders about financing a first-time home buyer mortgage loan for you, they will use two commonly accepted guidelines to help determine your ability to make home mortgage payments. These first-time home buyer program guidelines are a starting point for evaluating your ability to make the payments on the proposed home loan. So your mortgage lender will look closely at your financial situation to determine if more flexible guidelines are appropriate for you.

Your monthly housing costs (including mortgage payments, property taxes, homeowner and mortgage insurance, and home owner's fees) should total no more than 29 percent of your monthly gross (before taxes) income. In addition to your regular pay, your income can include funds from overtime work, a part-time job or second job; retirement, VA, and Social Security benefits; disability; welfare and unemployment benefits; alimony; and child support.

Your monthly housing costs plus other long-term debts such as payments on car loans, student loans, or other installment debt (debts with more than ten months left to repay) should total no more than 41 percent of your monthly gross income.

Now, to get an idea of the first-time home buyer mortgage loan amount that you might be able to qualify for based on your annual income, you will need to know the approximate interest rate that lenders are currently charging for a 30-year, fixed-rate first time home buyer loan.

A first-time home buyer should not have difficulty qualifying because the proposed monthly housing cost and total monthly debts are lower than the maximum guidelines. Most lenders consider this borrower a good potential customer if a first-time home buyer has a decent credit history and some money saved for a down payment. The borrower is not attempting to buy a house that would strap them financially. This individual gives every indication of being able to follow through on the commitment to repay this mortgage.

However, if the proposed monthly housing cost and the proposed total monthly debts are higher than the maximum guidelines, a first-time home buyer would probably not be able to qualify for a mortgage loan even if they have a good credit history. Even if the mortgage lender is very flexible and willing to use more generous program guidelines, a first-time home buyer might have trouble qualifying because their proposed monthly debts are well above the range most mortgage lenders consider reasonable. In this case, the family should concentrate on paying off some of their credit cards and getting their monthly expenses to a lower level before looking to buy a home for the first time.

Have You Been Turned Down For a Home Mortgage in the Past?

If you have tried to buy a home but could not get approved for a mortgage loan, you should try to find out why the mortgage lender did not want to make the loan.

Based on the information above, you may already have figured out why you did not get a mortgage loan. Maybe you did not have a steady work history, tried to buy a house that was too expensive for your income, or your debt level is too high. If you cannot figure out why you were turned down, you should ask the lending institution for an explanation. It would help if you also asked what steps you can take so that you can qualify in the future as a first-time home buyer.

What Do You Do First When Buying A House?

If you have read all the information above, you may be ready to begin buying a home as a first-time home buyer.

You may want a local real estate agent to show you homes in your area. You may also want to make an appointment with a mortgage lender. Working with a real estate agent will take some time to find the right home in the price range that you can afford. It will also take time to apply for the mortgage, have the lender evaluate your application, and approve your loan. Still, more time is required to do all the necessary paperwork and close on your first-time home buyer mortgage loan. But in the end, you will have a home for yourself and your family, and you will have achieved an important part of the American dream.

Owning your own home may seem out of reach, but you can change that over time.

Even if you know you cannot qualify now for a first-time home buyer loan or even six months from now, there may be a way you can work toward this important goal in the future. Nobody ever said becoming a first-time homeowner was easy. It isn't easy, but it's also rewarding. It can be worth sacrificing and planning over a long period.

Special first-time home buyer programs may allow you to accept a gift from a relative or to borrow a portion of the money you will need for the down payment and closing costs from a non-profit organization.

First Time Home Buyer disability mortgages and veteran loan programs help more Americans achieve home ownership. One way they do this is by providing objective information that makes the process of getting a mortgage loan less confusing.

No matter where you live or which type of house you choose, lenders will use general guidelines to determine if you qualify for a first-time home buyer mortgage loan. Before you begin house hunting, you may want to qualify with mortgage lenders to determine how big a mortgage you can afford.

Other Resources You May Find Helpful

• First Home Owners Guide to Mortgages
• Guide to Home Buying for People with Disabilities
• Disability Housing and Home Loans for Disabled Americans
• Debt Relief Solutions: Practical Steps to Get Out of Debt
• Home Budget Calculator for Planning Household Finances
• Home Purchase or Rent: Pros and Cons Comparison
• Is Buying a House Cheaper Than Renting a Home
• Government Disability Grants Information and Websites
• VA Home Loan vs. CFHA Loans
• Senior Homeowners: Using Your Home to Stay at Home
• Apartment to Home Ownership - A Disability Perspective

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Cite This Page (APA): Langtree, I. C. (2009, February 6 - Last revised: 2023, November 19). First Home Owners Guide to Mortgages. Disabled World. Retrieved October 6, 2024 from www.disabled-world.com/disability/finance/first-home-loans.php

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