How to Prepare to Buy Your First Home

First Time Homebuyer Tips

Buying your first home is exciting and overwhelming all at once. Before you get in over your head, use these simple tips to best prepare you for one of the largest investments you’ll make in your lifetime.

Save for a Down Payment

The earlier you can save for a down payment the better. While you don’t need 20% down to buy a home, the more money you invest, the easier it is to get financing. Plus, you’ll keep your mortgage payment down which not only helps you qualify for a loan but helps keep your payment affordable for the next 15 to 30 years.

Check your Credit

Your credit score is one of the most important factors in your application. It’s what lenders look at first and if it’s not high enough, they won’t approve your loan.

Everyone gets free access to their credit report weekly at Check all three credit reports and see what you need to fix. Look for:

  • Late payments
  • Credit utilization over 30% of your credit limit
  • Collections
  • Errors

Fix any issues you can and maximize your credit score. If you want to see your actual score, check with your credit card companies or bank – they may offer free access to your score too.

Get Pre-Approved (not Pre-Qualified)

Before you shop for a home, get pre-approved. Even if you think you have ‘great’ credit and good income, find out what a lender thinks first. We recommend getting quotes from at least 3 lenders so you can compare your options side-by-side.

You may find you get approved for more or less than you thought you could afford. A pre-approval letter also helps get your foot in the door with sellers. Many sellers won’t show their homes or entertain offers from buyers without a pre-approval.

Stick to your Budget

It’s tempting to go ‘slightly’ over your budget especially when you see it only makes a difference of a few dollars in your mortgage payment, but it’s a bad idea. Don’t get caught up in a bidding war or get so emotionally attached to a home that you outbid yourself. Stick to your budget and know that the right home will come along.

Exhaust all First Time Homebuyer Assistance Programs

As a first time homebuyer, you have many options for assistance. Talk with your lender and me to find out what programs are available to you. From low and no down payment loan programs to down payment grants, there are programs for borrowers of all walks of life.

Bottom Line

First time homebuyers have plenty of opportunities to secure a home. Even if you don’t have a 20% down payment or perfect credit, there are options available for you. The key is to maximize your qualifying factors as early as possible so you increase your chances of securing your dream home.

I’m always available for questions or help – together we can help you prepare for and buy your first home, making it a stress-free and fun process!

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How to Calculate your Debt-to-Income Ratio

If you’re in the market to buy a house, your mortgage lender will look at a couple of main factors to determine if you qualify. Most people know they check your credit score and credit history, but they aren’t aware of the debt-to-income ratio and how it works.

What is a Debt-to-Income Ratio?

Your DTI is a comparison of your monthly debts to your gross monthly income (income before taxes). The higher the percentage is, the higher your risk of default becomes. Lenders like borrowers with a DTI of 43% or less. This leaves plenty of money for living expenses and savings, reducing the risk of default.

What’s Included in your Debt-to-Income Ratio?

The only information you need to calculate your DTI is your total debts and total income.

Debts to Include in your DTI

The debts you include are those on your credit report. A few examples include:

  • Car payments
  • Minimum credit card payments
  • Personal loan payments
  • Student loans

The DTI also includes the new mortgage you’re applying for which includes the principal, interest, real estate taxes, and homeowner’s insurance. It also includes any HOA dues and mortgage insurance, if applicable.

Income to Include in your DTI

You can include any income the lender will use for qualifying purposes. Obviously, this includes your full-time income. But if you have any other sources of income that have a two-year history and will continue for the foreseeable future, you may include them too.

Common examples include alimony or child support you receive or side gigs you run with income you can prove.

Calculating your DTI

With these two totals, you can calculate your own debt-to-income ratio using this calculation:

Total debts/Total income = Debt-to-income ratio

Here’s an example.

Jan makes $7,000 a month before taxes. Her debts include the following:

  • Minimum credit card payments $150
  • Car payment $300
  • Student loan payment $250
  • New mortgage payment $1,750

Jan’s debt-to-income ratio is:

$2,450/$7,000 = 35%

How to Lower your Debt-to-Income Ratio

If your debt-to-income ratio is higher than a lender might like, here are a few ways to lower it:

  • Pay your credit cards down or off – If you have credit card debt, try to pay it off. If you can’t, at least pay them down so your minimum payment drops, and you lower your DTI.
  • Pay down other debts – If you have other consumer debts you can pay down to have less than 6 payments, lenders may exclude them from your DTI
  • Increase your income – If your income is too low, take on a part-time job or start a side gig. You’ll need to show receipt of income for a while, so the sooner you start it the better.

Final Thoughts

Your debt-to-income ratio is just as important as your credit score. Take the time to figure out your DTI and where you stand before thinking about buying a house. You can prepare both your credit score and debt ratio early on to increase your chances of loan approval.

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Renting vs Owning – Which is Right for You?

If you’re thinking about moving this year, you may wonder if renting or owning is the best choice? While there isn’t a one-size-fits-all approach to the matter, there are certain questions you should ask yourself to decide.

Do you Have Long-Term Plans?

When you buy a home, you can’t move as easily as you can when you rent. If you are ready to settle down in an area and commit, there’s no question that buying is better. But, if you aren’t sure where you want to settle down yet or you enjoy moving every year, renting may be the better choice until you are ready to set up roots.

Do you Have Money for a Down Payment?

Most loan programs require at least a small down payment. When you put money down on a home, you build equity in the home right away and you make your loan more affordable. Lenders require some ‘skin in the game’ to ensure you’ll make your payments on time and not risk losing the home.

Can you Take Care of a Home?

When you rent, the landlord oversees all renovations and repairs. When you own a home, the responsibility falls on you. If you’re able to handle the financial and physical responsibilities of owning a home, it is much better than renting. On average, it costs 1% of a home’s value to keep up with maintenance and repairs.

Can you Qualify for a Mortgage?

Unless you have the cash to buy a house (most people don’t), you’ll need to qualify for mortgage financing.

The good news is you don’t need to be rich or have perfect credit, but you should meet some or all of the following:

  • Have at least a 620-credit score
  • Have 3% – 5% of the sales price for a down payment
  • Have a steady job and steady employment
  • Don’t have any recent bankruptcies or foreclosures
  • Don’t have excessive credit card debt outstanding

Do you Want the Freedom to do What you want with your Home?

When you rent, you don’t have the freedom to do what you want with it. You must get your landlord’s permission to make any changes, or even to have pets. When you own a home, you make the decisions and can do what you want with the property within the city or homeowner’s association’s guidelines.

Final Thoughts – Should you Rent or Buy?

Renting a home doesn’t build equity or give you a return on your investment. Buying is the best way to go when you are ready.

If you have the money saved, have a stable job, and are already to settle down, then buying a home can be the best way to invest your money and give you and your family a great place to live. Knowing where to buy and what to buy to stick within your budget but get a great return on your investment is key. If you’d like help buying your dream home in 2022 – contact me today!

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If you’re in the market for a house, you might think about the features the house has or the price, but how often do you think about the mortgage rate?

Many buyers I work with don’t realize the importance of the mortgage rate, so I’m here to clear the air so you make an informed decision.

What is a Mortgage Rate?

The mortgage rate is the fee the lender charges you to borrow money. You borrow principal, or the amount of the loan and the interest is the fee they charge you. Your monthly mortgage payment includes both the principal (loan amount) and interest (the bank’s fee).

How Much of a Difference Does the Mortgage Rate Make?

You might not think the mortgage rate makes that much of a difference. After all, if it’s just 1%, how much more could you pay?

The difference is tremendous, especially if you’re talking about a 30-year loan. When you borrow funds for 30 years, you keep the bank’s money for that time. This means they charge you interest over 30 years versus 10 or 15 years on a shorter term loan.

Here’s an example:

You borrow $230,000 at 4% for 30 years. Your principal and interest payment are $1,098 and over the life of the loan, you’d pay $165,299 in interest. That’s in addition to the $230,000 that you pay back (the money you borrowed).

Now, if you borrowed $230,000 at 5% for 30 years, your principal and interest payment would be $1,234 per month and over the life of the loan, you’d pay $214,488 in interest.

That’s a difference of $49,189! I’m sure there’s a lot you’d rather do with that amount of money instead of paying the bank, right?

How to Lower your Interest Rate

So how do you make sure you get the lowest interest rate? While every lender is different, here are some ways to ensure you get the best rate possible.

  • Pay your bills on time
  • Don’t overextend your credit lines, keep your credit balances at 30% or less of the total credit limit
  • Dispute any incorrect information on your credit report
  • Keep a stable job and income
  • Make sure your monthly debts including the new mortgage are 43% or less of your gross monthly income
  • Don’t have any collections on your credit report
  • Make a large down payment

Lenders like it when borrowers are a low risk of default. You can be this by providing great credit, a large down payment, and solid employment and income histories.

Final Thoughts

Your interest rate makes a big difference in your mortgage payment and even what house you can afford. Sometimes even an interest rate that ½ point higher can make you ineligible for a mortgage loan.

Don’t take a chance. Shop around and get the best interest rates possible all while ensuring that you present lenders with the least amount of risk as possible.

If you have questions or would like to be connected witha local, reputable lender, please contact me today.

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Since way back when good old Hannibal started considering finding a bigger area to house his many elephants, the list of questions to ask real estate agents hasn’t really undergone much change. His first impulse was to choose the Roman Empire, but that didn’t really pan out for him according to history.

If he had simply consulted an experienced real estate agent, he could have possibly picked a more appropriate piece of property and history would have been forever altered. This is just another prime example of how important it is to retain the right real estate agent, but first you have to ask a few pointed questions. So, following is a five-question list to help you with interviewing an Orange County Real Estate Agent. Bear in mind that there are no absolutely hard and fast correct answers in this. In fact, if there were, eventually all real estate agents interviewed would have memorized each and every one of them anyway, so what would be the point, right?

On the other hand, the prime goal of this list is providing an easy method for comparing each contender’s individual response, while also serving to provide a bit of info regarding what state the real estate market in Orange County is currently in. It should also give you the opportunity to see just how functional the communication between the prospective agent and yourself is. Then you should know if he or she fully understood your questions and if the resultant answers were crystal clear. It’s of crucial value for you and your real estate agent to be on the same page, so here’s the list of five questions to ask your Orange County Real Estate Agent:

What is your experience?

First ask your potential agent how long he or she has been working as an Orange Real Estate Agent. Knowledge of all the specific features of the real estate market in Orange County and your specific neighborhood is obviously an important quality for any REALTOR®. Technical glitches that could spell trouble can be avoided when agents have in-depth industry experience in their background.

What success have you had?

Next, ask the prospective agent how successful he or she has been during the past year. It’s always important to know the number of homes that an agent sold followed by asking about the number that did not sell. If your potential agent has logical reasons for those non-sales, or even says that perhaps another approach to selling them could have helped; then this could show that he or she could be a good choice for an agent. One who proves to be receptive to new strategies and analytical about the selling approach, could turn out to be an excellent choice.

How long does it take?

Ask him or her to hazard a guess regarding the length of time that will be required for selling your property. Part of the answer should include the fact that the current days on the market (DOM) related to Orange County Homes For Sale in the specific category your home falls into only serves as an all-purpose guide for your expectations. The suggested asking price for your home should also be discussed at this time.

What’s your marketing process?

Next, ask your interviewee how he or she will market your home. This should include advertising media in both print and online. It’s a sign of true professionalism when the potential agent brings some recent samples for you to look at for a better idea in this area.

Do you use professional vendors?

And last but not least, be sure to ask if he or she will be taking professional photographs. This is essential for showing your prospect that you are well aware of their importance and will also help by putting them on notice that you feel this particular part of the marketing preparation process is a high priority. It also lets the interviewee know that you will be especially conscientious about preparing your home for the upcoming photo shoot.

Remember, hiring an agent should be treated as a job interview and interviewing multiple Orange County Real Estate Agents is a good idea before making that all-important final choice. I’m hoping that you are including me in the mix and that you’ll Call Me Today!
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