It is a dream for many to own their own home, however when that time comes, many are overwhelmed by the process. Others are unsure if they are even ready to make the move from renting to buying. At New Horizon Mortgage, we are here to answer any questions first time home buyers may have and help them through this important time in their lives.
So, where do you start? The first step is making sure you are in fact ready to make the leap from renting to buying. If you are ready to settle down in one place for a while, have a stable job, reliable income, and manageable debts, buying a home may be a good choice for you. If you are unsure about these things, renting offers flexibility should you be faced with unexpected changes.
Once you have decided on buying, one of the first things you will want to review is your budget to determine how much house you can afford. A standard rule is that your housing payment should not exceed 28 percent of your income. This is referred to as the housing or front-end ratio. Your monthly housing payment is comprised of principle, interest, taxes, and insurance. This ratio is just a rule of thumb and affordability will vary depending on each individual’s unique situation.
Preparation can be key to keeping your monthly payment low or allowing you to afford a nicer home. Maximizing your credit score can save you significant amounts of money through a lower interest rate. Saving money to make a larger down payment and to pay for closing costs up-front can lower your monthly payment as well as help you to avoid Private Mortgage Insurance (PMI).
Once you have properly planned and are confident you are ready to purchase your first home, it is time to look into pre-qualification and pre-approval. Pre-qualification is the less formal of the two processes, which involves analyzing your debt, income, and assets to give a general idea of what you may be able to afford. It is important to note that a pre-qualification is not a guarantee that you will be able to obtain a mortgage of that amount.
Pre-approval is the next step and it is a much more detailed process. This is the point at which you will complete a formal application and provide documentation such as pay stubs, W-2 forms, bank statements, and credit and debt information. Once this information has been thoroughly reviewed, you will be provided with a commitment for an exact loan amount and you can begin the search for your first home!
The true advantage of a pre-approval is in the negotiating power that it gives you. A seller is much more likely to accept an offer from someone who is pre-approved that someone who is not. The lack of a pre-approval creates uncertainty and doubt in the eyes of the seller. A pre-approval also allows you to expedite the buying process once you have found the home you want to purchase. You do not have to wait for your financial history to be reviewed. This added time can cause a seller to accept an offer from someone who has already taken the time to get pre-approved.
Once a seller has accepted your offer, it is time to close, and make things official. At closing, all parties will get together to sign documents and essentially provide you with the keys to your new home! For over 20 years, New Horizon Mortgage has been making the dream of homeownership a reality for families throughout San Antonio, Austin, and Round Rock. If there are any questions you have about purchasing your first home, contact us today and one of our experts will be glad to help!