AgSouth Mortgage Tips for First-Time Home Buyers
By AgSouth Farm Credit | From credit scores to down payments, we discuss six things all first-time home buyers should consider before making their purchase.
Are you thinking about purchasing your first home? If so, here are some great mortgage tips to determine whether you’re as ready as you think you are or if you still have some work to do before taking the next step.
1. Assess your current financial situation.
Pull together a basic financial statement that will give you a point-in-time picture of where you stand financially. Many websites have free, downloadable financial statements you can complete and print for your records. Knowing whether you have a healthy debt-to-income ratio or owe more than your assets are worth, will help you start planning for your big purchase.
2. Know your credit score.
Check your credit score through Equifax, TransUnion or Experian. While the average credit score is around 700, excellent credit usually applies to anything 740 and above. Having a lower credit score will affect both your interest rate and how much a lender is willing to lend. Knowing what your current credit score is before approaching a lender will give you time to improve your situation should a lower score prevent you from getting a loan to make your dream come true.
3. Know how much you need for a down payment.
Start by taking a quick assessment of what homes are going for in your area and determine the cost of what you want to buy. Many sites you search will also have mortgage calculators that can help you determine what your monthly payment might be. While there are home loan programs that require either no money down or offer lower percentages of down payments, the average conventional loan requires a down payment of at least 5 percent with private mortgage insurance required on anything less than 20 percent down. The more money you can put into a down payment, the more likely you are to get the lower interest rate you are after.
4. Is now the right time to buy a home?
Start by looking at other debts you need to pay off. Consider what you need to pay off first and work on eliminating one debt at a time. The wisest decision is usually to pay off the higher interest loans first, but there could be other factors to consider, such as if you have a small balance loan that you could pay off quickly. If debt-to -income is tight, consider starting with the smaller balance but higher monthly PAYMENT liabilities. Less monthly debt will lower your debt-to-income ratio. Knowing that you’ve marked one thing off your to do list can be a great motivator for future savings!
5. Open a dream home savings account.
Open a savings account specifically for your new home so you will be less tempted to spend it on non-essential purchases and can judge your savings accurately. Being able to watch your dream come closer with every deposit you make, can have the benefit of encouraging you along the way to stick with the program you have outlined for yourself. Remember - we will collect your most recent month of bank statements, if not two. And we have to source any non-payroll deposits, so don’t deposit CASH. Transferring funds from a checking to savings account is perfectly fine as long as the source is payroll, etc.
6. Develop a timeline.
The truth is that if you’re buying something substantial, saving up for the down payment can take years. You can make that time go faster depending on how much you’re willing to sacrifice today to live your dream a bit further down the road. Can you give up vacations? Put off new purchases that may cause you to slide back into debt? It may not be ideal for you to have a roommate or move to a smaller house or apartment in order to save, but lots of people do it as a means to realize their dream sooner. Only you can determine what sacrifices you are willing to make and still be able to have some fun along the way.
Although housing prices have fluctuated in the past few years, investing in a home you love has its own benefit. Interest rates are still as low as, or lower than, they were in the 1980’s. Additionally, in most areas, mortgage payments can be less than rent, and the principal you are paying is an investment into building equity into something you can sell down the line.
Did you know? AgSouth makes home loans for non-farmers through our secondary mortgage department. Loans available through AgSouth Mortgages include: USDA, VA, FHA, Conventional and Construction loans.
For more information on our home loan programs, visit our AgSouth Mortgages page.