Buying a home is not a simple process always. Homebuyers, especially the new ones often encounter problems while buying a shelter of their own. The first and foremost step to buying a home is to be prepared for the blocks or obstacles.
Being a first time homebuyer, at the outset, you need to find a real estate agent who is experienced enough to help you find the right home as per your need and budget. He is the only person who can guide you at every step of the way throughout the process of home buying. However, that doesn’t ensure that you won’t face any stumbling problem though he can help you address those problems and reach a feasible solution.
Here are 5 main obstacles that often first time homebuyers face.
• Finding required down payment – If you’re not enough wealthy, you’ll likely need a get a mortgage. All mortgage loans, except VA loans, require a down payment of certain amount. Apart from VA loans, the two popular types of mortgage are FHA loans and conventional home loans. Both of them require a minimum down payment ranging between 3.5% and 10% of sales price.
• Having a minimum FICO score – Magical number for FHA loan is 620 while the same is 720 for conventional home loans with mortgage insurance. If your score is below those numbers, you may not be eligible for a mortgage. For traditional home loans without mortgage insurance, the FICO score can dip as low as 620, however, the pricing is utterly bad.
You should ask the lender to run your credit report to find your FICO score. You can also get it online, but you will have to pay for that. Also, the FICO score you’ll get online is very likely to differ from what your lender obtains. The lenders usually pull credit scores from 3 leading credit reporting agencies – Equifax, Experian and TransUnion and take the average FICO score.
• Meeting front-end and back-end ratios – Usually lenders want buyers to have a maximum 33% front-end ratio, i.e. you mortgage payment plus insurance (PITI) and taxes must not exceed 33% of their monthly gross income.
The back-end ratio is a bit tricky. It involves adding PITI payment will monthly revolving debt payments. The percentage of the borrower’s gross monthly income must fall between 41 percent and 50 percent; it, however, depends on the loan type and the lender. The highest back-end ratio can’t exceed 41%. To be qualified for a higher back-end ratio, you need to put down a minimum of 20%.
Getting an appraisal at value – Home Valuation Code of Conduct or HVCC, nowadays, applies to conventional transactions including FHA transactions. The lenders could select own appraiser in the past; the appraisers were typically well experienced and knowledgeable about respective locality and its neighbourhood. But with the introduction of HVCC now the appraisal management companies choose an appraiser at random from the pool of appraisers. As a result, your appraiser can be from another locality and unfamiliar with your locality and its neighbourhood. And this often results in low appraisal. If appraisal doesn’t come in at value and the seller doesn’t agree to adjust the price, you can either walk away or pay the difference money.
• Meeting loan criteria – Underwriting is really frightening. The job of an underwriter is to review files and make necessary demands that may include more documentations and a review appraisal. Even then the loan application can be rejected for different reasons. However, you can avoid the odds of underwriting approval by disclosing everything about yourself including your financial situation to the lender.
If you’re planning to buy a home, consult the top real estate agent in your locality. A real estate agent is the best person to help you find out feasible ways to overcome all issues related to buying a home.
