If you’re tired of living in a rented home or apartment and dealing with associated issues like roommates and limited ability to customize the place, you’re ready to be a first-time homebuyer.
Owning your own home is a rewarding and energizing experience: you can redecorate, renovate, and landscape until you literally have the house of your dreams. So how do you get started?
The first step is to set up appointments with a realtor and mortgage agent. They will help determine what you can afford based on the following criteria:
- Credit Score: This important number is used by lenders to determine your creditworthiness for a mortgage, credit card, or loan. The pie chart above illustrates the factors that affect your credit score the most. To pull your credit report, use one of the following resources:
- Financing: Your credit score will determine how big a down payment you have to make.
- The minimum credit score that the FHA allows (as of 2013) is 530.
- Borrowers whose credit score is above 580 need to make a down payment of 3.5%. The funds can come from the borrower’s own resources or be a gift from a family member. A seller’s concession of up to 6% is permitted.
- A credit score below 580 requires a 10% down payment, which the borrower can supply from their own funds or obtain from a family member. A seller’s concession of up to 6% is allowed.
- Ratio of Income to Debt: The approved ratio can vary by lender, but the general rule is 28-37%. If you take all of your recurring debt and divide it by your gross monthly income, the result is your income to debt ratio. This figure can also be calculated online at CNNMoney.
The second step requires the most planning. Based on what you can afford, you need to decide what type of residential property best suits your needs by taking the following factors into account:
- Who will be living there? The number of residents, as well as any pets, will have an impact on your choice.
- Do you mind doing yard maintenance? If so, a condo would be ideal.
- Do you plan to earn any income from the property? If so, buy a duplex or a house with a studio apartment attached.
- Is privacy a big issue for you? Look for available properties out in the country, ideally on a few acres of land.
The age and condition of a home can make a difference in its purchase price. According to Realtor.com, first-time homebuyers should take a closer look at short sales, quick sales, and bank-owned properties. These homes represent an affordable solution to new buyers required to make a larger down payment.
Busy individuals are better off buying a newer property that requires little maintenance, but those with extra time and a talent for fixing things up can consider a fixer upper.
Remember to consider all options: what you and your realtor will find may surprise you!
The resale value of your prospective home also needs to be considered, because future circumstances may require you to eventually sell (more room for a growing family, moving for work purposes). Your realtor will be able to help you calculate an approximate resale value based on local reports and data.
Purchasing your first home is one of life’s most exciting and rewarding moments. Let an experienced realtor give you support and guidance as you go through the process of finding and buying your first home.
Tom Ashworth has a detailed and in-depth understanding of the current real estate market in the Texas Hill Country. Give him a call at 208-830-7991 and let him help you make your dream of home ownership an affordable reality.