Buying your very first home is not as easy as a walk in the park. You may be bombarded with real estate and mortgage terms that you’ve never heard of in your entire life. Plus, the paperwork necessary for closing a mortgage loan can be truly overwhelming and exhausting. To somehow help diminish your stress load, here are the top hurdles when buying your first home, so you can know what to expect and make the necessary preparations.
Tackling the Down Payment
If you’re dealing with conventional mortgage lenders, they will most probably ask for a downpayment of 10 to 20 percent of the home’s closing price. For a $500,000 home, that would be $50,000 to $100,000. And this initial amount can be overwhelming especially for first-time home buyers. But worry not. You may try and take out mortgage loan insurance from the Federal Housing Administration. If you do this, the down payment will be dramatically reduced to 3.5 percent of the home’s final price. For that very same 500,000-dollar house, you will give a down payment of only $17,500 instead of $50,000.
The Credit Score Issue
First, mortgage lenders will evaluate your three-digit credit score in order to decide if you’re qualified to get mortgage money or not and how much the interest rates will be.
Your credit score represents how you actually handle your finances, wisely or otherwise. If you are always delayed in your car or credit card bills payment, then you will have a lower credit score. Aside from this, another factor in having a low credit score is this: you probably don’t have a long and established credit history. Unfortunately, this negatively affects your credit score no matter how responsible you may truly be.
In order to qualify for a mortgage loan, preparation should start at least one year before you apply. Boost your credit score by being more responsible and paying bills on time. Borrowers having credit scores over 620 are preferred by most mortgage lenders. If you don’t do this, your low credit scores will force you to deal with substandard lenders with higher interest rates.
The Issue on Long-term Employment History
Lenders prefer borrowers with a work history of having the same employer for two consecutive years. If you are a young professional who is just starting out in the corporate world and is jumping from one job to another, this can pose a problem. However, there are still lenders who overlook this issue as long as you do have a job and a steady income.