A Guide for First-Time Home Buyers

The first step in becoming a first-time home owner is understanding what you can afford. This is the essential part of the home-buying process.

Step 1: Your Credit Report

Because the dispute process involving your credit history can take several weeks, is essential that you obtain a current credit report and peruse the details thoroughly.

Your report will include some very important information, including the following:

• Public records and collection accounts, which details any outstanding accounts that have entered a collection process


• Foreclosures and bankruptcies


• Accounts with open dates, balances and limits, payment history and the type of account


• Recent credit inquiries

Pay close attention your credit history, especially in the case of negative comments, which can remain on your report for seven years. Dispute any discrepancies with your creditors to ensure that your credit report is as current and accurate as possible. As I said before, disputes will take time, so if you decide to submit a dispute online through an agency such as Experian or Equifax, be sure to follow up with your creditors as well to expedite the process.

Step 2: Analyze Your Income vs. Debt

The U.S. Housing Department and Ginnie Mae offer a great tool to help you calculate how much home you can afford based on several factors, including gross income and outstanding debt.

Step 3: Your Expenses

Sit down and create an accurate estimate of your monthly expenses. Include every detail right down to gas, food and monthly utilities to ensure you have a number to compare with your gross income, and the information you gather from the credit report.

Also, check the blog feed below for tips and guides, as well as additional home services pricing and products here, to help reduce your monthly expenses.

As I stated previously, research should and will be your best friend throughout your home-buying journey. There is a ton of good information, both online and in print, regarding the aspects of the mortgage industry that every first-time buyer should become familiar with.

Understanding Your Debt to Income Ratio

The common 28/36 ratio is the benchmark that you will encounter when shopping for a loan. The first number (28 percent) refers to the maximum percentage of your monthly gross income that the lender allows for housing expenses, including payments on the loan itself, private mortgage insurance, hazard insurance, property taxes, and homeowners association dues.

The second number (36 percent) is the maximum percentage of your monthly gross income that the lender allows for housing expenses plus recurring debt, including credit cards, car loans, child support and so on.

Know Your Rights as Home Buyer/Owner

• The Fair Housing Act is in place to protect home buyers from discrimination, giving everyone equal access to buying the home they want.


• Understand your rights in the settlement process.


• Understand each and every one of your rights as a borrower. For example, you have the right to shop for the best loan for you and compare the charges of different mortgage brokers and lenders, as well as be informed about the total cost of your loan including the interest rate, points and other fees. This comes straight from the Real Estate Settlement Procedures Act(RESPA).


• Research all aspects of predatory lending, taking extra care to check references before you hire any real estate professionals. Here are some additional local resources by state for information on loan fraud and how to avoid it.
  

Loan Shopping

Doing your homework means more money in your pocket once the loan is approved. Using a mortgage calculator to determine your payments, how interest affects your payments and other relevant loan information will help you research your options before sitting down with a creditor.

The HUD has a great resource for advice on shopping and comparing mortgages. Also, here is an online resource for shopping and comparing banking services such as credit cards, homeowners insurance and mortgages.

Home Buying Programs

In addition to Federal Housing Administration loans, helping first-time home owners apply for loans with lower down payments and low closing costs for qualified buyers. Also check the HUD's resource for home buying programs in each state.

Once the dust has settled and you have waded through the research and pre-approval process for your home loan, the next step should involve sitting down and making a list of your exact wants and needs, then narrowing it down to the most important features in your new home.

Wants

Do you want walk-in closets, a pool, central air and heat, and any other amenity that you could think of that you would LIKE to have in your new home.

Needs

List your must-have features, especially if there are specific criteria for the neighborhood or school districts that must be included. List each and every feature that you and your spouse indicate must be included in the package to consider making an offer.

Do Not Want

Just because no one likes a negative attitude, doesn't mean you shouldn't spend equal time determining exactly what you don't want in your new home. For instance, people may neglect—or forget—to mention that they do not want a home near a major interstate or highway. Keep in mind that many of these seemingly minor factors may affect your home's resale value down the road, as well as your ability to negotiate a closing price that fits into your budget.