Buying a first home is an exciting experience and simply shopping for a home on the internet can be a joyful experience for new buyers. But the mortgage part is not really something to get too excited for most buyers. Getting a mortgage won’t really get your heart racing with excitement, in fact, it can be a bit scary for many Tennessee first time buyers. Here are some financing basics you can use to help ease the stress when applying for a home loan.
- Affordability is based upon current and future debt along with your gross monthly income. Lenders compare monthly credit obligations along with your future mortgage payment, including amounts for property taxes and insurance and compare that total with income. The result is your debt-to-income ratio, or simply “debt ratio.” Mortgage companies like to see this ratio be at or below 40- 45% depending on the loan program and down payment amount. If you make $7,000 per month, 43 percent of that is $3,010. Your mortgage payment along with other debt such as a credit card or car payment should be at or below this amount.
- Mortgage payments are calculated using current market rates, loan amount, and loan term. For example, calculating a principal and interest payment on a mortgage considers the loan term. Loan terms can range from 10 to 30 years. Lenders can provide you with a qualifying loan amount taking your gross monthly income and figuring all monthly debt.
- Getting financing for a home is also based upon your recent history. Most loan programs ask for a minimum credit score of 620 but there are some programs which will approve a borrower under certain conditions with a score as low as 580. You have three credit scores, one from each of the three credit repositories of Experian, Equifax and TransUnion. The mortgage company will throw out both the highest and lowest score, using the middle one for qualifying purposes. If there are two borrowers applying for the loan together (husband & wife) the lender will use the lowest of both middle scores.
- Finally, you’ll need some cash to close, even for 100% financing programs like USDA and VA. All loans do have closing costs, however many permit the home seller to pay these costs. However, there are some advance costs for required items like appraisal, home inspection, etc. The lender will verify you have enough funds available to you for both a down payment (if needed) and closing costs by looking at copies of your most recent bank statements.
Choosing the right loan program: FHA is a very popular choice for first time buyers in populated locations like Nashville and Memphis. FHA only requires a limited 3.5% down payment and the home seller can pay the buyers closing costs up to 6%. In more rural locations (suburbs) the 100% USDA Rural Housing loan is popular choice for home buyers looking to invest as little money as possible.
To discus all the latest First time buyer programs in Tennessee, please contact Coast2Coast by calling ph: 904-810-2293 or visit www.Coast2CoastLending.com