Buying a home is a big deal and no one should ever do it without knowing all of the facts. Getting roped into a loan that is even a percentage point higher than one would have been able to qualify for otherwise can turn into tens of thousands of dollars over the lifetime of the loan. Shopping around is always recommended when making big purchases of any kind and when dealing with the concept of making a huge purchase on something like a home, no stone should be left unturned. It is important for every home buyer to take personal accountability and personally educate themselves regarding home loans, because it is them that is going to have to live with the loan terms, not their real estate agent and not the lender. The internet provides a wealth of easy-to-find information about home loans that is fairly easy to understand and whatever one happens to still have questions about should be able to be answered by many lenders who are working hard to service the loan. Initially though, there are a few questions that one should ask themselves before they start talking to lenders.
1. How long do I plan on living in the house? If the answer to this question comes with any bit of uncertainty because the potential home buyer is unsure about their future in any way, they should probably get off of the home buying bus right now. Buying a home is a bug decision and one that comes with a lot of responsibility and whoever is thinking about buying one should be living a stable and have a stable career and paycheck, not for someone who does not know what they want to do with their life or is unsure of their short-term future. The latter should just keep on renting until they figure out what their goals are and if buying a home fits into them.
2. What much money do I have saved up? Most people should be able to answer this question right off of the top of their head. This is an important question because even some of the most reasonable home loan rates offered by the FHA are going to require a 3.5% down payment for a home. FHA loans are absolutely awesome, especially for first time home buyers because the qualifications are so reasonable in comparison to traditional bank loans. Everyone should have some money saved up but the 3.5% down payment can come from gift funds from the home buyer’s employer, a family member or a grant from a local or state down payment assistance program of some kind.
3. What is my credit score? This is an important question because it factors heavily into the interest rate that one is going to be able to qualify for. All three major credit reporting bureaus are required by law to provide an annual credit report to all consumers free of charge; however it may cost a small fee for them to include the credit score with the report. The potential lender is going to check this and find out anyway, but it is good for the buyer to know where they stand before they even get to the point where they give a lender permission to ‘pull their credit’. In order to qualify for an FHA mortgage loan one’s credit score needs to be a 580 or higher. There are some exceptions to this rule but there are not too many and one should not count on being one of those exceptions for any reason at this pint of the process.
4. What is my debt to income ratio? The answer to this question could stop one dead in their tracks if their monthly debts amount to more than 43% of their gross monthly income. One should aim for this ratio to be more in the range of mid to low 30s if they want to expect to get reasonable home loan terms that they can live with. The fact is that though, that everyone should keep their debt under control and that there are not too many acceptable reasons for it to get anywhere near the 50% mark for most people.
Everyone has different goals and come from different financial backgrounds so the answers to these questions are going to vary. Home ownership is the center of what the federal government believes that the American Dream is and that is why they created the Federal Housing Administration; so hard-working Americans of all income-classes can afford a home.