First time home buyer qualifications could mean one of two things – it could refer to how home buyers are classed as first time home buyers (i.e. what makes them a first timer), or it could refer to how you qualify for a mortgage as a first time home buyer. We've talked about the first option in another article, this article is going to focus on qualifying for a mortgage.
First Time Home Buyers
Getting qualified for a mortgage as a first time home buyer can be more of a challenge than for someone who already owns a home. The main reason for this is because lenders don’t already know you – they've had no experience of how well you can cope with repaying a large sum of money each month and they only have things like your credit score to go by. This is a bit of a chicken and egg situation though, because your credit score will improve the longer you have a mortgage and have kept up with your payments.
Apart from this aspect, first time home buyer qualifications are really not that different to the qualifications anyone would go through, whether it’s the second, third, or tenth home they have owned. So how do you qualify for a mortgage?
What are the Qualifications for a Mortgage?
First things first – before you even start searching for a home go and talk to your bank or a mortgage broker so that you can find out for sure how large a mortgage you can get. I know it’s tempting to just get out there and start looking at houses, but believe me, in the long run this will save you time and headaches. Imagine finding your dream home, getting an offer accepted and then finding it takes far longer to get your mortgage approved than you thought – or worse still you find you can’t get a big enough mortgage to afford the home and you end up losing it.
So, talk to a lender first and go through all the first time home buyer qualifications with them prior to starting your home search.
One of the biggest factors that lenders take into account is your credit score. This is a number that changes over time, depending on your spending habits and borrowing. The better the number the better your credit score is and therefore the more likely a lender is going to approve you for a mortgage. It’s never too early to try to improve your credit score – this can be done by making sure you pay all bills on time, keeping a low balance on your credit cards and always paying something to them by the due date, paying back loans within the agreed time frame and more. All these things show that you are responsible with your money.
Your debts will also have an effect and these will be shown on your credit report – so this includes any loans such as a car loan. If you have already maxed out your borrowing and you have large debts to pay back each month a lender may be reluctant to lend you any more.
Of course, first time home buyer qualifications will also be largely based upon your salary and job security. The longer you have been employed the more favourable it is to the lender as compared to someone who has changed jobs frequently in the past few years. And the lender will look at your debt to income ratio – how much debt do you have compared to what you earn each month?
A final consideration is the value of the home you want to buy. First time home buyer qualifications aside, a lender will never approve a mortgage on a home if their appraisal has shown it to be worth a lesser value than you are paying for it. This is both for your and their own good – making sure the mortgage would be covered when the home is re-sold.
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