How can i buy my first home

Buying a house is a major commitment. Before you begin shopping for properties or comparing mortgage options, you need to make sure you’re ready to be a homeowner.

Wondering if you should buy a house? Let’s look at some of the factors that lenders and homeowners alike should consider.

Income And Employment Status

Your lender won’t just want to see how much money you make. They’ll also want to see a work history (usually about 2 years) to make sure your income source is stable and reliable.

Preparing your income is all about pulling the right documentation together to show steady employment. If you’re on payroll, you’ll likely just need to provide recent pay stubs and W-2s. On the other hand, you’ll need to submit your tax returns and other documents the lender requests if you’re self-employed.

Debt-To-Income Ratio

Debt-to-income ratio (DTI) is another financial instrument mortgage lenders use to evaluate your loan application. Your DTI helps your lender see how much of your monthly income goes to debt so they can evaluate the amount of mortgage debt you can take on.

DTI is calculated by dividing your monthly debt by your gross monthly income. For example, if your monthly debts (credit card minimum payments, loan payments, etc.) total $2,000 per month and your gross monthly income is $6,000, your DTI is $2,000/$6,000, or 33%. Your lender will use the debts shown on your credit report to calculate your DTI.

Depending on the type of loan you’re applying for, your lender may also calculate your housing expense ratio, also sometimes referred to as front-end DTI. This is a ratio that looks at your total monthly house payment (principal, interest, taxes and insurance) compared to your monthly income. For example, if you have a $1,200 house payment and the same $6,000 monthly income, your housing expense ratio is $1,200/$6,000, or 20%.

It’s smart to review your DTI before you apply for a loan. In most cases, you’ll need a back-end DTI of 43% or less to qualify for the most mortgage options, although this number varies based on your lender, loan type and other factors.

Liquid Assets

Even with the help of a mortgage, you’ll still need liquid assets to fund the purchase of a home, specifically your:

Down payment: Buying a home with no money down is possible, but most homeowners need to have some cash for a down payment. A down payment is the first major payment you make on your loan at closing.

The amount of money you’ll need for a down payment depends on your loan type and how much money you borrow. You can buy a home with as little as 3% down (though there are benefits to putting down more).

Closing costs: You’ll also need to pay for closing costs before you move into your new home. Closing costs are fees that go to your lender and other third parties in exchange for creating your loan.

The specific amount you’ll pay in closing costs will depend on where you live and your loan type. It’s a good idea to be prepared for 3 – 6% of your home’s value as an estimate of your closing costs. In some situations, part of closing costs can be rolled into your mortgage or paid by the seller using seller concessions.

Credit Health

Your credit score plays a huge role in what loans and interest rates you qualify for. Your credit score tells lenders how much of a risk you are to grant a loan.

Taking steps to improve your credit score and reduce your debt can pay off big as you prepare to get a mortgage. Better numbers mean better loan options with lower interest rates.

Your credit score is based on the following information:

• Your payment history
• The amount of money you owe
• The length of your credit history
• Types of credit you’ve used
• Your pursuit of new credit

What score will you need to qualify for a home loan? Most lenders require a credit score of at least 620 to qualify for the majority of loans. A score above 720 will generally get you the very best loan terms.

At Rocket Mortgage®, you can qualify for an FHA or VA loan with a 580 median FICO® Score. However, to qualify for these with a median score below 620, you’ll need a housing expense ratio of no more than 38% and an overall DTI no higher than 45%.

Willingness To Live In One Place

A mortgage can be a 30-year-long commitment. Though you don’t need to live in your home for the entirety of your mortgage term, it’s still a big decision. When you own a home, it’s more difficult to move. Unless you’re buying a second home or investment property, you might need to sell your current home first, which can take time.

Decide whether you’re ready to live in your current area for at least a few more years. Consider your career goals, family obligations and more. Each of these factors will play a major role in the type of home you buy and where you set up your primary residence.

Timing

Deciding whether it’s a good time to buy a house or not depends on a variety of personal factors (such as financial readiness and lifestyle preferences) and market conditions (such as economic health and current mortgage rates).

Ultimately, the right time to buy a home comes down to your own unique situation. Be sure to consult a financial expert before making any big financial decisions such as buying a house.