Buying your first home is exciting, a chance to make it all yours. Like any change this can be a little stressful or confusing. What do New Home Buyers Need to Know? The following steps will help reduce your stress, making you prepared for your first loan application.
Know your credit report
Go to annualcreditreport.com and get your credit report from all three of the reporting agencies. You get one free report a year. Your credit score can make a huge difference in how much you qualify to borrow and the interest rate you’ll pay. If you find errors on your report, correct them. Contact the Mortgage Department at Mid Oregon Credit Union if you would like suggestions on improving your credit position.
The difference between a high credit score and a low credit score is the interest rate you will get. For a $250,000 loan the rate difference could be as much as 1.55% higher, increasing the total interest paid by $62,772 over the life of the loan. Higher rates also impact the payment amount of the loan. To look at some scenarios and see the difference, review our loan calculator online.
Know what other documents will be useful
Having documents ready will speed up the process.
• W-2 forms – Past two years.
• Income Tax – Depending on your situation two years tax returns may be required.
• Paystubs – Two most recent. Phone numbers and addresses for your current employer.
• Other Monthly Income – This includes any additional ongoing income you may want included in your income calculations.
• ID – Current state or federal issued identification.
• Financial account statements – Last two months.; do not use print screen, make sure to print the actual statements. Include deposit accounts, 401K, investments and checking accounts.
• Gifts – If any money for your down payment was given to you, identify how much and where it came from. Have a document ready showing that it’s a gift and not a loan.
When you call to make an appointment, ask what papers you should bring. At Mid Oregon Credit Union you can complete your application online at https://mattmitchell.zipforhome.com/
Know what you can afford
The elements that come into play are your income, its stability, how much you have for a down payment, and how much debt you have.
• Your total monthly housing commitment—mortgage principal and interest, property taxes, and homeowner’s insurance—should be no more than 28% of your gross monthly income (income before taxes and other deductions). So, if your gross monthly income is $3,000, the monthly house payment should be $840 or less.
• Your total debt — meaning house payments plus student loans, car loans, and credit cards, etc. — should be no more than 45% of your gross monthly income. That means if your gross monthly income is $3,000, all monthly debt payments should not go over $1,350. Some loan options will allow this ratio to increase to as much as 50%. Going higher than 45% will require deposit accounts with reserves for possible emergencies.
Also consider how much of your monthly cash flow you want to put into house payments, so you don’t end up “house poor.” Find a house payment you can handle and still have money for savings, education, vacations, entertainment, childcare, and other priorities.