If the goal of buying your first home seems out of reach right now, don't give up. Many people are realizing their dreams of homeownership. With the right planning, you can too. Here are some tips to help you get started on the path to owning your own home.
Start With Your Credit Report
Now that you're ready to buy your first home, the best place to start is with your credit report. Your credit report holds just about all the information lenders will use when offering you a home loan. If you don't know what's on your report, you won't be prepared for the negotiations. Don't just look at the credit score, although that is a valuable piece of information. Start by looking at the other details of your report, such as collection accounts, payment history, and judgments. If you have unpaid collection accounts or judgments, take care of those before you apply for any home loans.
Look at Your Loan Options
When it comes to applying for home loans, it's crucial that you take a look at all your available options.
If you and your spouse have a high credit score and a favorable credit report, you may qualify for a conventional loan. However, they do require a larger down payment and strict qualifying factors.
If you or your spouse are active-duty military or have been honorably discharged from the military, you may be eligible for a VA loan. VA loans require a lower credit score and often do not require a down payment.
If you or your spouse do not meet the criteria for a VA or a conventional loan, an FHA loan will still allow you to purchase a home. FHA loans allow home purchases with lower credit scores, as well as smaller down payments. FHA loans are an excellent option for first-time homebuyers and those who are working to rebuild their credit.
Save for a Larger Down Payment
If you're trying to buy your first home, don't overlook the down payment. The right down payment can make all the difference in the world when you're trying to get approved for a home loan. No-down home loans are available, but they usually come with a higher interest rate and larger monthly payments. If your credit score is anywhere between 500-579, you should plan on providing at least a 10% down payment. However, if your credit score is at least 580, plan on a 3.5% down payment for your home loan. To improve your chances of obtaining a home loan, try to aim higher than the minimum requirements.