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  • Money Matters: First-Time Home Buyer Basics

    Congratulations. You’ve finally decided to buy a home to call your own. As one of the biggest purchases you’ll likely make in your lifetime, navigating the steps to finance your home can be a daunting experience. Like most big-ticket consumer purchases, knowledge is power. If you take the time to do your research and shop carefully, you will have a successful home-buying experience.  

    When it comes to home buying, you need to decide how much to spend and which type of mortgage will work best for you. Before you step into a sales office or model home, here are some steps to ensure you’re in the best possible financial situation to purchase a new home.
     
    Determine Your Monthly Payment. The first step is to figure out what you can comfortably pay every month. Make a list of all your monthly expenses including loan payments, utilities, insurance, credit cards and don’t forget food, clothing and entertainment expenditures. Your estimated monthly payment should not only include your mortgage but also other factors such as property taxes, home insurance, loan terms (how long you would like to pay off your mortgage) and home owners association fees (if applicable). To help you figure out the total cost, there are many mortgage calculators available online to help you determine your monthly payment based on current interest rates and down payment amounts. 
     
    Pay Down Your Debts. As you begin preparing your finances for the purchase of a new home, you might see the term “debt-to-income ratio” (DTI). Your DTI compares how much you owe each month to how much you earn, which is expressed as a percentage. This percentage helps lenders gauge how well you manage your monthly obligations and if you can afford to repay a loan. In general, the lower your DTI, the more likely you are to qualify for a mortgage.
     
    Access First-Time Home Buyer Resources. Attend a first-time home buying seminar or talk to a credit counselor who does not work for a lender. The U.S. Department of Housing and Urban Development (HUD) offers free housing counseling and seminars. Visit hud.gov/housingcounseling or call HUD's interactive voice system at: (800) 569-4287 for more information. 
     
    Connect with a Lender. After you’ve completed all of your research, visit a lender and learn more about what loans would be available to you. Then, get pre-approved. This will tell you how much money the lender is willing to loan you, and you will know in which price range you should be shopping. In a hot housing market, pre-approval enables you to quickly make an offer when you find a home and it is attractive to sellers who are considering multiple offers.

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