Congratulations on your decision to explore purchasing your first home! We here at Lincoln Lending couldn’t be more excited to help you navigate the thrilling journey of first-time home ownership. With the support of our industry experts, we’ll provide you with everything you need to know when financing your new property. From preparing your finances, to securing the best loan rates and terms, we promise to make this experience one that you’ll always remember.
Getting Started
Above anything, the first element to buying a new home is exploring what you can afford within your budget. Once you set a realistic number, you can begin searching for homes that fall within your price range.
It’s important for home buyers to remain honest with themselves when considering maximum budget. As we’ll address shortly, your mortgage payment will consist of more than just the property value. Keep in mind that you’ll have to manage room for insurance, fees, taxes and other premiums that are added to the principal cost.
Determine Your Affordability
Above anything, the first element to buying a new home is exploring what you can afford within your budget. Once you set a realistic number, you can begin searching for homes that fall within your price range.
It’s important for home buyers to remain honest with themselves when considering maximum budget. As we’ll address shortly, your mortgage payment will consist of more than just the property value. Keep in mind that you’ll have to manage room for insurance, fees, taxes and other premiums that are added to the principal cost.
Begin Preparing Your Finances
Prior to being approved for a loan, you’re evaluated by how much risk you pose as a borrower. To ensure you’ll be able to make regular payments each month, there are a few factors taken into account that determine whether or not you qualify. These components, specifically your credit score, will also set the rates you qualify for.
That’s why it’s so important that you prioritize your financial health, and work to address and strengthen any identifiable weaknesses prior to buying a home.
Credit Score
Your credit score will have a major impact on determining whether or not you qualify for a loan. When financing through specific programs, this number will also influence the rates and terms that you’re offered.
What is your oldest credit line?
How much total credit do you have available to use?
Do you regularly make payments?
Do you have any delinquencies?
Have you previously filed for bankruptcy, short sale or foreclosure?
Based on this information, the bank will determine whether or not it feels comfortable lending such a large sum of money. However, since credit isn’t the only component that demonstrates your capacity to pay back money in a timely manner, other elements will be considered such as debt-to income ratio, total income, employment history and assets.
Debt-to-Income Ratio (DTI)
our debt to income ratio will be considered to determine, if after all bills are paid each month, you still have reasonable amount of money left over. Each loan program operates with different DTI requirements.
How do I calculate my debt-income ratio?
Step 1: First add together each of your monthly bills (anticipated mortgage payments, school loans, credit card payments, car payments, child support, etc.).
Step 2: Once you calculate that total number, divide the sum by your income each month
Begin Saving Money for a Down Payment
Some programs do offer zero percent financing, however, keep in mind that those rates will also increase the amount of interest you accrue over the lifetime of the loan. In addition, zero-down programs are typically offered to specific buyers, (such as veterans or those purchasing property within a rural area) so expect to put down a minimum of 3.5%.
To ensure you’re prepared with the funds necessary to close on a home when you want to, its recommended that you begin saving towards that down deposit well in advance of securing your new home.
Explore Your Loan Options
Your dedicated loan officer will work with you to explore the program that best aligns with your needs:
FHA Home Loan
Government-backed FHA home loans are often relied upon by first time home buyers. They’re accompanied by some of the industry’s most flexible guidelines, require little down payment and don’t discount homeowners with lower credit scores.
Conventional Home Loan
Conventional Home loans are often not associated with the federal government but rather adhere to guidelines initiated by two agencies known as Fannie Mae and Freddie Mac. While they don’t have requirements as forgiving as FHA, these programs offer competitive rates and reasonable down payments that suit many first-time home buyers with adequate credit.
USDA Home Loan
USDA Home Loans are programs designed to benefit homeowners looking to purchase property in rural areas. Similar to VA and FHA, it is backed by the government and has the potential to offer great terms that benefit home buyers. It’s the only home loan program that offers a 0% down payment available to people who are not veterans.
VA Home Loan
VA Home Loans are government issued loans offered to qualifying individuals who are currently active duty personnel, veterans, or surviving spouses who meet necessary requirements. These programs offer zero down payment, no minimum credit score and no cap on debt-income ratio.
Factor in Total Costs
Be sure to factor in all costs when budgeting your overall monthly mortgage payment. These can include but are not limited to:
Property Value: This is the total cost of the home itself
Appraisal Fees: This typically costs a few hundred dollars and is required to assess the property value
Property Inspection: Your home must be inspected to ensure it aligns with requirements set by the entity backing your home loan. Government issued loans will have stricter requirements which could require you to make necessary improvements prior to moving in.
Mortgage Insurance: A premium paid either monthly or upfront to offer lenders a sense of security should you default on the loan.
Insurance: This is required to protect property owners of any liability should an unforeseen event result in the damage or destruction of your property, possessions or a third party.
Property Taxes: You’ll be required to pay property taxes which will be determined once you decide on the area where your home is located.
Align the Neighborhood with Your Lifestyle
When looking at different properties, be sure to consider how they align with your lifestyle. From surveying the surrounding school districts, to discovering if there’s a sense of community, we’ve provided a list of questions that you may want to keep in mind when exploring different neighborhoods.
How is the school district?
Are things easily accessible by foot or do I need a car?
Is there a strong sense of community?
How long will your new commute take?
Also you travel a lot, is it close to an airport?
How is the school district?
What is the neighborhood like?
What is the crime rate like?
You’re Almost There…
Once you’ve narrowed down your desired property, you’re on your way to securing the necessary financing for your new home! With our help, we’ll make sure that we equip you with everything you need to support your new investment. Even after you’ve dotted your ‘I’s’ and dotted your ‘T’s’ we’ll be standing right by your side to get you ready for move in day. (link to move in checklist)
You’re on your way to accomplishing an enormous milestone, and we’re thrilled to help guide you throughout this exciting journey. As Oklahoma’s leading lenders, we’re the team you can depend on to address all your needs when looking to move to the address you want.