Purchasing a home for the first time is no easy task. Today, I’d like to share a list of the six biggest obstacles facing first-time homebuyers:
1. Down payment. Unless you’ve won the lottery or are independently wealthy, you’re probably going to need a mortgage. If you happen to be a veteran, you can take advantage of the VA loan. This program allows you to put 0% down on a home. However, most other loan types will require some sort of down payment. Typically, this down payment will be a minimum of anywhere from 3% to 15%.
2. Minimum FICO score. If you’re using an FHA loan, you must have a minimum score of 620. But if you’re using a conventional loan, your score must be a minimum of 720. If your score falls below these numbers, you may not qualify for a mortgage or the interest rate may be higher on the mortgage you do qualify for. To find out your FICO score, ask your lender to run your credit report. Your lender will pull your score from three different credit reporting agencies and use the middle score.
3. Meeting lender ratio. Most lenders expect buyers to have a maximum 33% front-end ratio. This means the total from your mortgage payment, taxes, and insurance cannot exceed 33% of your monthly gross income. If you earn $5,000 a month, the maximum principal, interest, taxes, and insurance payment (or PITI payment) you may qualify for is $1,650. The back-end payment is a little trickier, since it involves adding together your PITI payment and all monthly revolving debt. This back-end payment needs to fall between about 41% and 50% of your gross monthly income.
4. Receiving an appraisal at value. The Home Valuation Code of Conduct (also known as the HVCC) applies to all conventional transactions since January 1, 2010. It now applies to FHA transactions as well. In the past, a lender could choose their own appraiser. Now, an appraiser management company chooses an appraiser at random. This appraiser may not be from the area, which may result in a low appraisal. If the appraisal does not come in at the value and the seller refuses to alter the price, the buyer must come up with the extra funds or the transaction will fall apart.
5. Satisfying loan conditions. Underwriting can be brutal. An underwriter reviews the file and can make demands. They will ask for documents, sometimes more than once, and may request an appraisal review. Even after all demands are met, they could reject the loan for a variety of reasons.
6. Low inventory. As you may know, we’re seeing tighter inventory than ever. Today, it’s common for buyers in our area to be competing with a dozen or more offers on a single home. There are two solutions I’d like to offer to this. First, be the first one to a property so that you can weed out the competition and get the best price. Second, call an experienced, competitive buyer’s agent who can help match you with the perfect home.
If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.