Purchasing your first home is a little like falling in love—it’s exciting, emotional, mysterious, and can be life-changing. If this sounds familiar, you’re in safe company. But we’d like to help you set aside those emotions (and late-night Zillow-browsing sessions) and give you a healthy dose of practicality.
First-time home buyers have lots to get excited about, and there’s plenty of time and space for that, but we’re going to lay a logical cornerstone that’ll make the home-buying process easier in the long run.
Look At Your Debt-To-Income (DTI) Ratio
Most of us have some form of monthly debt, whether in the form of credit cards, rent, student loans, or car payment debt. Unless you’re paying hard cash for your first home, you’ll need to obtain a mortgage from a lender—and every lender, whether government-backed or private, will assess your DTI.
To determine your debt-to-income ratio, first add up all of your monthly debt payments (i.e., loans and credit cards). Then divide by your gross monthly income. You’ll get a decimal as a result—simply multiply it by 100 to get your DTI percentage. Lenders will typically want you to be lower than around 45 percent.
What’s Your Budget?
It’s easy to forget that purchasing a home does not begin and end with monthly mortgage costs. Additional costs include:
- Down Payment: Conventional lenders typically require prospective homebuyers to produce a 10 to 20 percent down payment. Because you’re a first-time buyer, you may be eligible for a government-backed FHA loan, which only requires a 3.5 percent down payment.
- Closing Costs: First-time homebuyers are often surprised that in addition to producing a down payment, they will also have to pay closing costs, which typically range from 2 to 6 percent of the loan amount.
- Moving Expenses: Moving expenses vary, but the national average is roughly $1,400 and can range from as little as $800 to as much as $2,500.
Our best advice: Don’t fall in love with your dream home before setting a budget—otherwise, you may be tempted to overextend your finances. If you need help determining your budget, use our handy mortgage calculators.
Check Your Credit Score
Are you going with a conventional loan? Credit score requirements vary, but most lenders require a score of 620 or higher. However, you’re a first-time homebuyer, which means you may qualify for FHA loans, which only require credit scores of 580+.
Get Pre-Approval Now
Be preemptive and get your mortgage approval letter early. Why? This letter shows sellers and agents that you’re a serious buyer—giving you an advantage over competing buyers.
Getting this letter is fairly straightforward. The lender pulls your credit and reviews your assets and DTI. If you pass the exam, you’ll be granted pre-approval.
Working with First-Time Home Buyers? That’s Our Specialty!
As a top Pasadena mortgage broker serving LA County and all of California, we believe in providing first-time home buyers with a superior lending experience tailored to your needs and goals. Our approach is personalized, and we value the long-lasting relationships we build with our clients. Request your rates today to get started!