What Exactly do First Time Home Buyers Need?
That's one of the questions I've been asked, and it deserves an answer. Know that there is some flexibility to the answer, as there are embedded trade offs. You don't need as much of an income, or as high of a credit score, if you have a down payment. A sufficiently high credit score can also mean that you can afford a more expensive property, as higher credit scores get better interest rates, and therefore, lower payments for the same property. On the flip side, if you have monthly bills that consume a large amount of your income, you cannot afford to pay as much for a property. The same applies if you cannot prove sufficient income via the traditional means of w-2s or income tax forms, as the alternative loan forms do not give rates as good. Finally, most of this only applies if you want or need a loan. If you intend to pay with cash, you can buy anything legal that you desire with your cash, and the hurdles become much smaller.
The first thing any buyers need if they want a loan for the property is a source of income. If you want a loan, you've got to have money coming in from somewhere to make the payments. Preferably, it's a documentable, regular source of income, such as paychecks or income from a business on which you report taxable income. I suppose I should mention that tax cheats have difficulty getting good quality home loans, because I have dealt with a few people I suspect of that. Don't worry, I'm not an IRS employee and I won't turn you in. But all lenders must report loan transactions, and every real estate transaction is a matter of public record. If you make a major purchase or take out a major loan, the IRS can take an interest in you. Just sayin'.
You income, together with whatever amount you have for a down payment, gives you a budget for a property. If your credit score is not horrible, a down payment is optional, but you will need at least a couple thousand for a good faith deposit, and probably another thousand at least for appraisal, inspections, and miscellaneous stuff. The once-upon-a-time rule of thumb about a 2% earnest money deposit has long gone by the wayside, but a good deposit is often evidence that you are serious about your ability to consummate the deal, and might get you a lower price in negotiations. I will argue against my listing clients accepting any offer, no matter how good, without a deposit, and most sane real estate agents agree with me.
Regarding the down payment, it may be optional, but at least a certain amount is a good option if you have it. In order to make a difference on the terms of your loan, the required down payment generally goes in increments of 5%. 5% will get you better terms than you would get for no deposit, 10% will get you better terms than 5%, 15% better than 10%.
If you want to take advantage of a governmental first time buyer assistance program, either the Mortgage Credit Certificate or a locally based buyer assistance program, you need to be very careful about staying within what you can prove you can afford via tax forms. Stated Income, or documenting your income via bank statements, is not an option on any of those programs. Using creative financing options, such as negative amortization loans, with such programs is similarly forbidden. First time assistance programs are not designed to encourage irresponsibly buying a more expensive property than you can afford; they are designed to help you stretch what you can afford a little further. Know what you can afford in terms of sales price, because agents and loan officers can too easily manipulate payment quotations. Rules of thumb (2.5 times income, four times income, whatever) are worthless. This article will help you compute what you can afford, once you know the approximate rates for current thirty year fixed rate loans.
You will need to be able to document a two year history of housing payments. Since you have never bought before, this means rent. No fun to have had to enrich someone else for a couple of years, but there are valid reasons why lenders require a history of regular housing payments on time. If you can document that you've been paying regular rent to your parents, grandparents, or what have you, that can count, although lenders will usually ask for copies of the canceled checks rather than accepting their word for it.
You will also need a history of credit payments. Mortgage lenders want to see evidence that you have the habit of paying your debts on time regularly. The usual criteria is three total lines of credit, one open for at least 24 months, the other two for at least six months. These can be revolving lines of credit such as credit cards, or installment debt such as car payments. Note that they do not necessarily have to still be open, but whatever balances and monthly payments you still have will be counted against your debt to income ratio.
Also, you generally need at least two open lines of credit in order to have credit scores reported by the major credit bureaus. Ideal is two long term credit cards with very small balances. You will need an appropriate credit score for what you are trying to do. What score is sufficient will depend upon the exact characteristics of your transaction. For 100% financing under full documentation, a credit score of 580 is generally sufficient. Better scores will lower your rate, and therefore your payments, but the best thing that can be said about a 580 credit score is that it isn't putrid.
The last things I will mention that will stand you in good stead are also optional: An educated layperson's knowledge of the process (I would like to think being a regular reader here will help with that), a investigative attitude, and the willingness to shop effectively for services, both loan and real estate.
Caveat Emptor
Categories
Buying and Sellingblog advertising
--Blogads--
blog advertising --Blogads--
My Links
-
Heavy Lifters
- Instapundit
- Michelle Malkin
- Scrappleface
- Volokh Conspiracy
- Captain's Quarters
- Wizbang
- Victor Davis Hanson
- Eject! Eject! Eject!
- Michael Barone
- The Victory Caucus
- The Truth Laid Bear Places I get to as often as I can
- The Command Post
- Good News Central
- Icerocket
- Life Liberty Property
- MEMRI
- Raging RINO Community
- Technorati
- Transparency International
- Wide Awakes
- The Anchoress
- Argghhh! R
- Armies of Liberation R
- Asymmetrical Information
- Austin Bay
- Belmont Club
- Big Lizards
- Tim Blair
- Cox and Forkum
- Dr. Sanity
- Kevin Drum
- Gateway Pundit
- Hugh Hewitt
- Iraq the Model
- Jeff Jarvis
- Jihad Watch
- John Leo
- Lileks Screed
- Little Green Footballs
- Josh Marshall
- Mudville Gazette
- Neo-neocon
- WSJ OpinionJournal
- Politburo Diktat R
- Powerline
- Powerline News
- Protein Wisdom
- Q and O L
- Real Clear Politics
- Mark Steyn
- Stop the ACLU
- Strategy Page
- Don Surber R
- Vodkapundit
- Watching America
- Matthew Yglesias
- Michael Yon Personal Finance, Economics and Business Sites
- Bloodhound Blog
- Consumerism Commentary
- Eidelblog L
- The Entrepreneurial Mind
- Finance Blog
- Financial Rounds
- Free Money Financea>
- In Cash Flow We Trust
- I Will Teach You To Be Rich
- Mortgage Fraud Blog
- No Credit Needed
- Old Niu's Blog
- Pacesetter Mortgage Blog
- Personal Finance Advice
- pfblogs.org
- Social Security Choice
- Students for Saving Social Security Other sites I've linked and visit
- Accuracy In Media
- Ace of Spades
- The Agitator
- All Things Jennifer R
- Ann Althouse
- American Citizen Soldier
- The Anarchangel L
- Angry in the Great White North L
- Antigravitas L
- The Anti Idiotarian Rottweiler
- Art of the Blog R
- Atlas Shrugs
- aTypical Joe R
- Professor Bainbridge R
- Baldilocks
- Barcepundit
- Beldar
- Belgravia Dispatch
- Below The Beltway L
- Blackfive
- The Buck Stops Here
- Catallarchy L
- Chapomatic
- Chequer-Board of Nights & Days
- Clarity and Resolve
- Classical Values R
- Combs Spouts Off L
- Common Sense and Wonder
- The Counterterrorism Blog
- Countertop Chronicles R
- Coyote Blog
- Daily Howler
- Daily Pundit R
- David's Medienkritic
- Dean's World R
- Decision '08 R
- De Doc L
- Brad DeLong
- Democratic Peace
- Different River
- Digger's Realm R
- Done With Mirrors R
- Drink This
- Drudge Report
- DUmmie FUnnies
- enrevanche R
- Eschaton
- Evolution R
- Fearless Philosophy L
- Forward Biased L
- Generation Why?"
- Happycrow's Eyeball Factory L
- Hold The Mayo L
- Huffington Post
- The Idiom
- IMAO
- INCITE L
- INDC Journal R
- Inside Larry's Head R
- Inoperable Terran
- Iowahawk
- It Comes In Pints?"
- The Jawa Report R
- Just One Minute
- Justus for All R
- Kausfiles
- Ezra Klein
- Daily Kos
- La Shawn Barber
- Liberals Against Terrorism
- Libercontrarian RL
- Libertarian Leanings R
- Liberty Papers
- Carol Platt Liebau
- Llama Butchers R
- Mensa Barbie
- The Moderate Voice
- Mossback Culture R
- Mover Mike L
- Mr. Completely L
- National Review Online
- No Angst Zone L
- Normblog
- Brendan Nyhan
- Ogre's Politics & Views L
- One Fine Jay R
- Owlish Mutterings L
- Patterico's Pontifications
- Peter Porcupine L
- Bradford Plumer
- Pole Dancing In The Dark L
- Political Calculations
- POV R
- Publius Pundit
- Radio Equalizer
- Reasoned Audacity
- Respectful Insolence R
- Rhymes with Right L
- Riehl World View
- Right Place
- Right Reason
- Right Thoughts R
- Right Wing Death Beast
- Right Wing Nut House
- ROFASix
- Samizdata
- Say Uncle RL
- Debbie Schlussel
- SCOTUS Blog
- Roger L. Simon
- The Strata-Sphere R
- TacJammer
- TalkLeft
- TAPPED
- Target Centermass L
- Technography R"
- Tempus Fugit
- Texas Best Grok L
- Tigerhawk
- Link Text
- Tinkerty-Tonk R
- Tom Rants RL
- Unalienable Right
- Uncommon Insanity L
- Unrepentant Individual L
- Villainous Company
- Oliver Willis
- Willisms
- The World According to Nick R
- World Wide Rant R Link Exchanges, etcetera
- But That's Just My Opinion
- Condo Buzz NYC
- Crazy Rants of Samantha Burns
- DANEgerus R
- A Dollop of Sour Cream
- Dust My Broom L
- Generic Confusion R
- Grim's Hall
- Heartless Libertarian L
- individ L
- Kesher Talk R
- Leaning Toward The Dark Side R
- Libertopia L
- Liberty Corner L
- Medary L
- Mondo QT L
- Nose On Your Face R
- Pererro R
- Pratie Place
- Random Fate R
- Ravings of John C. A. Bambanek L
- Signifying Nothing R
- The Skwib L
- Tel-Chai Nation
- TF Sterns Rantings L
- DC Thornton R
- Wake Me Up On Judgement Day R
- Windypundit L Consumer and Research Sites
- Better Business Bureau
- Consumer Reports
- NASD Home
- California Department of Real Estate
- California Licensee Lookup
- California Department of Insurance
- National Association of Insurance Commissioners (NAIC)
- Do Not Call Homepage
- IRS Charities Search
- Internet Fraud Complaint Center
- SEC Home Page
- Stop Mortgage Fraud
- Report Mortgage Fraud Debunking Many so-called Real Estate Gurus
- John T. Reed Other research
- FactCheck.org
- Babel Fish Translation
- Snopes Worthwhile Web Comics
- Sluggy Freelance
- Day by Day
- User Friendly
- Kevin and Kell It is site policy to list the main page of every site I reference. Sometimes the real world intervenes and I haven't gotten to it yet, or one falls through the cracks on a long post with multiple references. It is also site policy to list the main page of every site that lists this one on their equivalent roll, as well as the main page of all sites that are members of any of the same groups this site is a member of. Please send me an email with a link to the main page of your site if I've overlooked you (dm at the domain name). For the clue-challenged, note that it is a requirement for your link to appear on every page of your site, just like mine does, and I will not link to spam sites. Honor Roll of Sites Banned by Paranoid Repressive Governments: (be the first on your block to submit a link!)
Requests for reprint rights, contact dm (at) searchlightcrusade (dot) net! Subscribe to Searchlight Crusade
C'mon! I need to pay for this website! If you want to buy or sell Real Estate in San Diego County, or get a loan anywhere in California, contact me! I cover San Diego County in person and all of California via internet, phone, fax, and overnight mail.
**********
Contact me! dm (at) searchlight crusade (dot) net (Eliminate the spaces and change parentheticals to the symbols, of course)
Leave a comment