Things Every First-Time Homeowner Should Know

Becoming a first-time homeowner is a major decision. It can also be an exciting endeavor. To increase your chances of success, you need to prepare carefully. Here are some things every first-time homeowner should know.

Your Credit Matters

Before you start to search for a home, the first thing you should do is check your credit report. If there are any errors, get them fixed. Mortgage lenders will focus on your credit report and score when evaluating you. The better your credit score, the less of a risk you are and the better terms you will get.

If your credit score is 760 or higher, you can get a $250,000 loan at a 30-year fixed rate for a 2.5 APR. This means that over the life of the loan, you pay $100,000 in interest. If your credit rate is at 659, you can end up paying $160,000 over the life of the loan.

Check Your Debt to Income Ratio

You can calculate your DTI by taking your monthly debt and dividing that by your gross income. For example, if your total monthly debt is $1,650 and your monthly income is $6,400, then your DTI is 26%.

Most lenders do not want your DTI to be over 40%. This includes paying for your new mortgage. They will often ask that your mortgage payments be less than 30% of your income.

Save for the Down Payment

Conventional lenders are not going to finance 100% of your home purchase. They typically want you to make a down payment of between three and 20% of the home’s purchase price. If you put down as much money as possible, you get a lower interest rate, translating into lower monthly payments. Suppose you don’t have enough money for that initial down payment. You might be able to get assistance through programs offered by the Federal Housing Administration or the Department of Housing and Urban Development.

Additional Expenses to Factor in with Your Mortgage Payment

The cost of buying your home isn’t just repaying your mortgage. You will also have to get private mortgage insurance if your down payment is less than 20%. This will be between 0.5% and 2% of the loan amount each year.

Property taxes average around $3,000 a year. Alabama has the lowest property taxes. New Jersey residents have the highest taxes.

Homeowners insurance is different from private mortgage insurance. Homeowners insurance covers the home if there is catastrophic damage by a windstorm, fire, or hail. The premiums will vary based on the home's value, home amenities, and credit score. But you should expect to spend between $800 and $3,500 each year.

Enjoy the Journey

Purchasing your first home is a significant step. You know when you and your family are ready to take it. Having a stable income, good credit, and a sufficient amount of money saved can get you off to a great start.

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