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6 Keys to Apply for a Mortgage Loan as a First Time Home Buyer

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First time home buyer

Are you a first time home buyer and don’t know if you are ready to purchase a home? Are you not sure what you need?

In this post, we’ll let you know the 6 key aspects you need to be prepared when requesting a mortgage loan to buy your first property in the United States.

1. Legal Status

To buy a home in the United States, you must be a Citizen, Permanent Resident or have some legal status as Non-Permanent Resident (such as some type of visa, political asylum, refugee, etc). If you are a foreigner and do not live in the United States, you can also purchase an investment property in the United States but the process is different, you can contact us if you want more information related to this type of loans for foreigners.

2. Down Payment

When you are a first time home buyer, you have the benefit of putting down only 3% if the type of loan is conventional or 3.5% if it is FHA. If you are going to buy in a Condo, your down payment might need to be higher depending on whether the Association (HOA) meets certain parameters or not.

3. Money at Closing

Although being the first time home buyer you will have the benefit of a 3% or 3.5% down payment, but purchasing a home has other associated expenses such as property taxes, insurance, title and origination fess. So it is important to keep in mind that the money you must have to purchase a property will be between 7.5% and 11% of the property’s value and it will depend on the interest rate you want to get (this already includes the 3% or 3.5% down payment).

General speaking, try to have in reserves 10% of the property’s value. That is why if, for example, you want to buy $ 350,000 property, you must have about $ 35,000 in reserve. If the home costs is $ 450,000 about $ 45,000 and so on.

4. Credit History

When buying a home, it is very important that you have worked on your credit since it will be reflected in your credit report. So, if you had bankruptcy, collections, late payments, charge offs, etc, everything will appear in the report.

Additionally, the higher the credit score, the better the interest rate you can access and therefore your monthly payment will be lower.

At this point it is important to mention that each credit report is unique and the way in which the automated pre-approval system analyzes that history is who will tell us whether you can be pre-approved or not.

Having collections or charged-off does not necessarily prevent a pre-approval from being obtained.

If you have a bankruptcy in process or with times less than 2 and 4 years from the “Discharge” or “Dismissal”, you cannot apply for a mortgage loan

With us you will be able to apply for a loan from a 580 credit score for FHA and from 620 for Conventional.

5. Income

Any person who applies must have 2 years of income, either as an employee (who receives a W-2 Form) or a Self-Employed, whether they own a business or receive a 1099 Form. In both cases, the two years of employment history should be in the same industry and position or activity.

For the Self-Employed it is important to note that the qualifiying income is the Net Income or Profit that remains after expenses is your last two Tax Returns. This will be the average monthly income that will be taken based on what is declared in the last two years.

If the self-employed has at least 5 years working on their own, their application can be evaluated with a single year of taxes but their down payment must be at least 5% and their debt-to-income ratios will be 45%

6. Liabilities 

When analyzing how much home a person can afford, the relationship between income and debts is very important and it cannot exceed 50% or 55% of their monthly income. This relationship will include all monthly car financing or lease payments, minimum monthly credit card payments, personal or student loans, any other liability and also the mortgage loan.

That is why it is recommended that, if the income is not very high, paid in full your credit cards or at least or decrease your outstanding balances as much as possible.

If you have any concern of want to get Pre-Approved, don’t hesitate to contact us!