While home prices continue to climb in South Florida, more homes are on the market. This has created an opening for first-time homebuyers to find something they can afford.
But what about the financing? You must work closely with a loan officer like the ones at Tropical Financial Credit Union. They can guide you through this new, sometimes complicated process. Here are some tips to ease your journey from renter to homeowner:
Get Pre-Approved for a Mortgage Before You Start Home Hunting
Sit down with a TFCU loan officer to calculate how much house you can afford. While your debt-to-income ratio might seem simple to determine, several factors go into calculating it:
- Your monthly payments on an existing car, education and other loans plus the minimum due on your credit cards and other revolving lines of credit.
- Your gross monthly income – the amount before taxes and other deductions – from your salary, commissions and bonuses if they are consistently paid, any self-employment income, and income from other sources such as rental properties.
The lower the ratio, the better. You can afford more homes, and a lender is more likely to approve your application. The credit-rating agency Experian recommends less than 36%, noting that the figure should be no higher than 42%.
Improve Your Credit Score to Improve Your Borrower Status
As a first-time buyer, you have not yet built up a long-term, consistent record of mortgage payments that shows you are a trustworthy borrower. Thus, your credit record will be closely looked at. Take these steps well before you apply:
- Pay off credit cards and pay down other loan balances.
- Consider a debt consolidation loan to reduce your interest expenses. Tropical Financial offers personal loans at rates well below those on credit cards.
- Increase your income through a better-paying job or outside work.
- Don’t take on any new debts or apply for credit cards.
- Find places in your personal budget to cut expenses and put the savings toward debts.
Shop Around for the Most Affordable Mortgage
Now that your finances are in better order, it’s time to shop around for a lender. You will find mortgage companies, brokers and financial institutions with similar but not identical deals. Compare them based on the numbers – interest rate, points and closing costs – and also based on reputation. As a credit union, Tropical Financial puts its members first.
You will find all sorts of loans: fixed-rate, adjustable-rate, FHA and VA if you are a veteran. Be sure to ask for special programs for first-time buyers that require a lower downpayment and have more favorable terms. Look for those that ease the upfront cash demands and cost less over the first 5-to-10 years of the mortgage. Request closing-cost disclosures so that you can compare expenses side by side.
Seek Help With Your Downpayment
Your biggest challenge may be the downpayment. In ideal circumstances, you could cover 20% of the purchase price and avoid having to make monthly escrow deposits for insurance and taxes. Family members can help, but only under certain conditions. You and they will have to draft a document called a gift letter that states where the funds came from, that they need not be repaid, and that the relative will not be a part homeowner. Talk to lenders about their requirements.
Feeling overwhelmed? Mortgage advisors at Tropical Financial can help. They can help you understand the complicated math, finance terminology, and loan choices. With their guidance, you will enter the homebuying market with knowledge and confidence.
Tropical Financial offers a first-time homebuyer’s program. For more information visit our website.
