Tips for first-time home buyers
The process of buying your first home actually starts months before finding the place you want. Some things to do:
- Pay down your debts, or pay them off if you can. Prospective buyers often concentrate on accumulating the largest possible down payment. Using any extra money to eliminate credit card or other high-interest debt is smarter.
- For some first-time buyer programs, a down payment of 3 percent of the loan or less is required.
- Credit-card debt will limit how much you can borrow. Lenders won't allow total monthly debt service to exceed 40 percent of gross income.
- How much house can you afford? Mortgage companies say the annual mortgage payment, taxes, and homeowner insurance shouldn't exceed 28 percent of gross income.
- When determining how much cash you have for a down payment, be sure to consider closing costs plus a little extra for emergency repairs once you move into your new home.
Less-than-perfect credit
- Thanks to Fannie Mae's "expanded approval" program, buyers with slightly blemished credit can qualify for mortgages at competitive rates. The rates are as much as two percentage points lower than alternative financing.
- If you can't qualify for Fannie Mae, you may still qualify for an FHA-insured loan. They are geared toward buyers with low-to-moderate incomes.
Down payment assistance
- Each year HUD gives states and municipalities money to distribute to families for housing. Much of it is put toward down-payment assistance programs. Many young prospective home buyers may qualify for a grant worth 3 percent to 5 percent or more of the sale price to put toward their down payment.
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