For most first-time buyers, financing their purchase is the biggest hurdle. Share theses financing tips with your buyers to help smooth their path to homeownership.
- 1. Do a personal financial review. Create a financial plan with a preferred monthly housing payment, available cash for down payment and closing costs, income and spending.
- 2. Start with an early loan preapproval. Buyers should obtain preapproval for a mortgage as soon as they begin thinking about buying a home, said Marc Demetriou, senior vice president and branch manager of Guaranteed Rate in Montville. “I prefer when a buyer calls months in advance so I can do a complete financial review,” said Demetriou “They’ll know exactly what they’re comfortable spending per month and how much they have for a down payment before they start the home search.”
- 3. Gather your information for a preapproval. First-time buyers should be ready to fill out an application with addresses and employers, get a credit check and provide income and asset information, said Brian Woltman, branch manager with Embrace Home Loans in Basking Ridge.
- 4. Meet the minimum qualifications. Loans through the Federal Housing Administration generally require a minimum FICO credit score of 600 and conventional loans require a 620 score, said Demetriou. Your debt-to-income ratio, which compares your minimum monthly payments on all debt with your gross monthly income, should be 50 percent to 55 percent or less depending on the loan program, said Demetriou.
- Gather your cash – but not 20 percent. The misperception persists buyers need 20 percent for a down payment. First-time buyers can put down as little as 3 percent or 3.5 percent of the purchase price for conventional or FHA financing and Veterans Affairs loans allow zero down payments, said Woltman. You’ll also need 2 percent to 3 percent of the purchase price for closing costs, said Woltman.
- Understand the gift rules. About 28 percent of first-time buyers depend on gift money for some of their down payment, according to the National Association of Realtors®. Gifts are only allowed from family members, said Woltman and need to be documented by a gift letter, a copy of the check or wire showing the funds received and proof it was deposited in the buyer’s account.
- Find about homebuyer programs. Ask your mortgage lender about special loan programs for first-time buyers. Woltman recommends checking with the New Jersey Housing and Mortgage Finance Agency to research homeownership programs.
- Choose the right loan for you. If you have good credit and a low debt-to-income ratio, a conventional loan may be best. If you have less than perfect credit or a higher debt-to-income ratio, an FHA loan may work. A good mortgage professional can guide you and help you compare your options.