5 TIPS FOR FIRST-TIME HOMEBUYERS – ARE YOU READY?
When it comes to buying a home, there is a lot to consider: Where do you want to live—near work, school, transportation, or family? What kind of home do you want to live in—single family, duplex, townhome, or condo? Where to begin? It can be a time-intensive, costly, and confusing process, especially if you’ve never done it before.
As a first-time homebuyer, you have a lot to think about. As experienced Mortgage Specialists, the team at The National Bank of Indianapolis is prepared to provide personalized guidance to our clients.
Regardless of the location or type of home, many first-time homebuyers start with a simple question: “Am I ready?” To help you decide if you are ready, our team has assembled some of the most commonly asked questions they’ve encountered over the years and provided some helpful insights.
How much money do I need to have in the bank?
The first thing you need to know before buying a house is simple: how much money do I actually need? There are the one-time expenses such as down payment, closing costs and moving expenses, and the ongoing costs of homeownership.
Down Payment – this amount depends on the type of loan and can range from 3% to 20% of the purchase price. Some financial institutions provide additional resources that can ease the burden of a down payment, often based on household income or status as a first-time homebuyer. At The National Bank of Indianapolis, we offer low and no down payment mortgage loan options including our HomeReady® Mortgage Loan and First Step Mortgage Loan.
Closing Costs – these are the expenses beyond the down payment and include home inspection fees, loan origination charges, title insurance, appraisal, homeowners insurance, real estate commission and more. Some of these costs, like the home inspection and appraisal fee, may need to be paid in advance of closing.
Keep in mind that the costs of homeownership don’t end at closing. Once you buy a home, you’re responsible for all repairs, maintenance costs and future upgrades. Plan to set aside additional money each month to build up cash reserves and an emergency fund.
How does my credit score affect my ability to qualify?
Your credit history is a key component in being approved for a new loan. Review your credit report for free at www.AnnualCreditReport.com and ensure that the information is accurate. By paying your bills on time, keeping revolving debts to a minimum, and resolving collection accounts, you can maintain a good credit score.
Whatever your credit score or history, consulting a professional regarding your personal circumstances can help. The Mortgage Specialists at The National Bank of Indianapolis can provide workable solutions that meet your needs.
Will student loans and/or medical bills affect my ability to qualify?
While student loan debt will be considered in your ability to repay a mortgage loan, medical bills will not. Lenders will review your income and your debts and calculate a debt-to-income (DTI) ratio. Debts include your housing payment, student loans, auto loans, credit cards, installment loans, and more. Aiming for a DTI ratio of 36% is a good goal.
Create a budget
Taking the time to create a household budget is an important step toward being financially prepared to own a home. Consider all of your needs and wants - housing, utilities, insurance, transportation, food, entertainment, childcare, debt payments, clothing, personal care, pet care, subscriptions, medical/medication, technology, cell phone, giving, and a set-aside for savings.
Talk to your lender about the monthly mortgage payment options, along with the property tax and insurance expenses. If the new mortgage payment increases, how will you cover the difference? Compare your current housing expenses to the new monthly mortgage payment and decide where you’re comfortable.
How much house can I afford?
Before you start your house hunt, know what you can afford. Weigh the amount of income you have coming in (monthly earnings) against how much you have going out (needs/wants/savings). Aim to keep your housing payment below 31% and your total debts below 36% of the household income.
It is important to know who you are working with, especially your Real Estate Agent and Mortgage Banker. Interview different candidates to ensure you’re working with someone who will advocate for you and understand your goals and limits.
Setting this understanding with your realtor, your lender, and yourself can help you find a home you love and a mortgage you can afford. The Mortgage Specialists at The National Bank of Indianapolis will work with you to review your finances and can help you achieve your homeownership goals.
Buying a home is a major milestone and dream for many. With the right team in your corner, homeownership is possible. If you’re ready to start looking, have found the home of your dreams, or need more information, our experienced, local team is here and ready to serve. The Mortgage Specialists at The National Bank of Indianapolis provide solutions that meet your needs, and service that exceeds your expectations.
For a seamless homebuying experience, connect with our Mortgage Specialists.