You may be surprised. Many lenders consider a first-time homebuyer to be anyone who has not owned a home within the last three years. Though criteria vary by loan program, they can include:
Keep in mind, the home has its own (separate) criteria. It may include:
Don't let the fear of the unknown deter you from purchasing a new home. If you need help getting a mortgage, finding down payment assistance, improving your credit before you buy, or simply navigating the process of buying your first home, American Financing is here to provide guidance.
Follow these first-time homebuyer tips to successfully navigate the process and avoid common mistakes.
*If you are taking a first-time homebuyer course as a requirement to a loan program, this step may take place later in the mortgage process.
Once you've begun the application process, it's important to avoid doing anything that may harm your chances of approval.
Regardless of whether the debt is secured or unsecured, lenders will compare your recurring monthly obligations to your gross monthly income, or your debt-to-income ratio (DTI). It's an important requirement that can make or break your chances of mortgage approval. So, try to avoid taking out other loans or lines of credit or at the very least, put them off until after mortgage approval.
Prevent this by making large deposits (typically money that does not come from payroll) at least 60 days before applying for a mortgage. And always be sure there is a paper trail, so you can help your lender source where the funds came from.
At American Financing, we ask that borrowers do not allow any credit inquiries or open any new accounts during the approval process. This is because it changes the credit scores and debt ratios since there are new debts to be added. And, any change in credit scores or history can hurt your mortgage rate. This includes co-signing for other people's credit, which is the same as applying for your own credit in the eyes of the bank.
Don't close accounts either. Closing an account reduces your available credit. For example, if you have credit limits totaling $10,000, and balances of $2,000, your ratio is 20%. If you then close an unused credit card with a limit of $6,000, you just raised your ratio to 50% — and that's a bad thing to a mortgage lender.
So, borrowers who change jobs in the middle of the process create additional underwriting conditions which end up delaying the loan approval process. If you are thinking of switching jobs and want to qualify for a home mortgage soon, consult with a mortgage professional to see if the job move will negatively affect your ability to be eligible for a mortgage.
Before making that big leap into purchasing that dream home, check out a few more tips that are specific to cutting costs when buying a new home.
Grant programs are designed to help homebuyers acquire more funds for down payments. Qualified buyers have no obligation to pay back granted funds, as long as they meet program criteria.
Make too much to qualify? You're in luck. Grants are only one way to help homebuyers with upfront costs. As of November 2018, there are currently over 2,500 active down payment assistance programs in the United States. So don't be afraid to seek state or government assistance. There may be an option that fits your needs perfectly.
The larger your down payment, the less you have to finance. If you have family members who are willing to "gift" you money that can be applied toward a down payment, take advantage! The amount you can accept varies by loan program, and it requires a letter that documents the funds are a gift and not a loan. Your lender may ask to see a bank statement verifying that the donor has the money to gift to you, a copy of a canceled check made out to you, or paperwork showing an electronic transfer between the donor's account and yours.
For a full list of rules, a gift letter example, and program requirements, be sure to check out our down payment gift article.
Shopping around to consider all loan options is always a good strategy to help cut home costs. Requiring just 3.5% down to get into a home, the FHA loan program provides government backing on loans underwritten by banks. Although your monthly payment may overall be higher, it may make sense for you to consider an FHA loan to pay minimal money upfront and then spend more later.
If you reside in Colorado, take a look at Colorado Housing and Finance Authority's CHFA loan, which can get you into a home for as little as $1,000 down. Even better, if you're active duty military or a veteran, the VA loan comes with no mortgage insurance and no required down payment to get into a home.
Don't forget; there are many more loan programs out there. Our experienced mortgage consultants can help with deciding which loan is best for your financial situation. They can even customize a loan program, so it's the right fit for your needs.
Closing costs generally run between 2% and 5% of your loan amount. Depending on the real estate climate in your area, you have the opportunity to get a portion of your closing costs covered if you negotiate with the home seller. Factors like how long the home has been on the market and if the market (in general) is struggling are good reasons to negotiate closing cost options.
Just don't forget the bottom line: be prepared and save what you can along the way. The mortgage process can be relatively straightforward so long as you follow your lender's guidance and you're ready to commit to making that dream (home) come true.