What Newbie Home Buyers Need to Know
By: Alive Credit Union
Buying your first house is an exciting time, but it can be a little scary as well. To minimize your anxiety, the following will help you prepare for your first meeting with a loan officer.
Go to annualcreditreport.com and get your credit report from all three of the reporting agencies. You get one free report a year. Your credit score can make a huge difference in how much you qualify to borrow and the interest rate you’ll pay.
If you find errors on your report, correct them. That won't happen overnight, so the sooner you clean it up, the better you’ll be.
If the facts are accurate but your credit history could be better, expect to spend at least 6 to 12 months cleaning it up by paying down debt.
Here's how much of a difference it makes: On a $150,000 30-year fixed-rate (3.85% annual percentage rate) mortgage, with an excellent score of 760 or higher, your monthly payment would be $703, and you'd pay $103,033 in total interest. But a credit score of 620 would cost $846 a month (5.4% APR) and rack up $154,407 in total interest payments.
You'll need several other records when you talk to your lender:
- W-2 forms – from the past two years.
- Paystubs – your two most recent ones.
- Financial account statements – for the past 3 months.
- Lines of credit – anything that wasn’t opened with your credit union.
- Information about vehicles you own – make, model, and resale value
- Auto-loan account information – account numbers and statements
- Credit card account information – numbers and types of cards, balances, and minimum payments
- Other loan account information – include student loans and personal loans
- Gifts – If any money for your down payment was given to you, identify how much and where it came from. Have a document ready showing that it's a gift and not a loan.
Some of this information may be available online. When you call to make an appointment, ask what papers you should bring.
The elements that come into play are your income and its stability, how much you have for a down payment, and how much debt you have.
Maybe you have heard the 28 / 36 guideline. This means:
- Your total monthly housing commitment—mortgage principal and interest, property taxes, and homeowners insurance—should be no more than 28% of your gross monthly income (income before taxes and other deductions. So, if your gross monthly income is $3,000, the monthly house payment should be $840 or less.
- Your total debt—meaning house payments plus student loans, car loans, and credit cards—should be no more than 36% of your gross monthly income. That means if your gross monthly income is $3,000, all monthly debt payments should not go over $1,080.
Also consider how much of your monthly cash flow you want to put into house payments, so you don't end up "house poor." Find a house payment you can handle and still have money for savings, education, vacations, entertainment, childcare, and other priorities.
You'll have to come up with a down payment from 5% to 20% on a conventional home loan—or from $7,500 to $30,000 on a $150,000 house.
In addition, be prepared for these expenses:
- Closing costs for title search, appraisal fee, loan origination fee, and more
- Utility hook-up charges
- Prepayment of taxes, interest, and property insurance
- Moving expenses
Your Alive Credit Union Mortgage Manager, Ken Galliher, can help you calculate what you need and how much you want to keep on hand for the inevitable expenses that arise after you buy a house. Just give him a call at 904-296-1292 ext. 7493