Have you ever been in a situation where you have wanted to buy a new home but did not know if you would qualify? What should my credit be? How much money do I need for a down payment? These are all questions that first time home buyers have asked themselves at one time or another. In this article, we will be discussing three things to consider before buying your first home.
1. Credit Score
We have all been here before. Where should my credit be to qualify for a mortgage? Different lending companies vary on this subject. Generally, most lenders will allow a minimum score of 580 for FHA loans with a 10% down payment. This would mean that if you wanted to buy a home priced at $200,000, you would need $20,000 to put down, excluding closing costs. In most cases, your score should be 620 and above to qualify for other types of mortgages such as VA and conventional. When you have a higher credit score, it will allow you to make a smaller down payment. A good rule of thumb is to always shop around different lending companies when buying your first home. Shopping lenders will allow you to see the wide range of offers and programs available to you in your market area.
2. Down Payment
Down payments are one of the most important parts of the entire real estate transaction. This is money that you pay upfront to show that you are financially ready and responsible to buy. Typically, most lenders want at least a 3.5% down payment for an FHA or Conventional Loan. Other loan types like VA do not require a down payment if you qualify. It is important to remember that having a strong downpayment is a major benefit for you. The more money paid at closing, the lower your monthly payment will be. Always discuss with both your lender and realtor how much of a down payment makes sense for you.
3. Area
One of the most talked-about components that you hear in the real estate business: "location, location, location." Where you buy makes a tremendous difference in the overall price and demand of the property. For example, five acres of land in southern California will be six to seven times the price of that in Alabama. This goes back to the economic principle of supply and demand. The more desirable area, the higher the price. Always research the area in depth that you are thinking about living in before you start to buy. Having a great real estate agent in your corner will help make this process a lot easier and more efficient.