3 Main Steps To Homeownership
Many people think that buying a home is difficult and they need to wait until they have a large amount of money saved or until they get an "Excellent" credit score. However buying a home is easier than you think and you may actually be in a position to buy and not even know it.
You might be ready to purchase a home if you meet the following three requirements:
#1- You have stable income, meaning you have been consistently employed or self-employed for the past couple of years and have the documents such as pay stubs, tax returns, and bank statements to prove the amount of income you've earned. Other sources that can also be included are SSI, Child Support, Alimony, and any Assets you may have, such as property, stocks, bonds, and mutual funds.
#2- You have a minimum FICO score of 580 or better, contrary to popular belief you don't need to have "Excellent or Good" credit to purchase a home. You can qualify for a FHA Loan if you meet the minimum credit score requirement, however the better your score, the better your interest rate and loan terms will be. A higher credit score will also increase your ability to qualify for Down Payment Assistance Programs.
Where Can I Check My Credit Scores?
You can pull your credit report once per year, for free, and without penalty at www.annualcreditreport.com, but this is for the report ONLY, not your scores.
You can also see your reports from all three bureaus and two of your scores from Equifax & Transunion, for free, and without penalty from www.creditkarma.com I like Credit Karma, the reports are accurate, but the scores can be a little off sometimes, however it's still worth taking a look at.
Another option is to pay $40 to get all three of your scores + reports, directly from the credit bureaus, www.Equifax.com and www.Experian.com both offer this service plus more.
There are also certain banks, credit card companies, and credit unions, that offer free credit reports and scores to their account holders, so you may want to check with them first.
#3- You have significantly more income than debt, which is also known as the "Debt-to-Income Ratio (DTI)". Your DTI is used to determine your ability to manage your monthly bills in addition to a new mortgage. The DTI is actually two different percentages, referred to as the front/back. The "Front" ratio includes your housing debt only, the "Back" ratio includes the total of all your debts.
The preferred DTI to qualify for a FHA Loan is 43/55. The DTI is based on your monthly gross income, before taxes, and your recurring monthly debt, which may include rent, credit cards, car note, insurance, child support, etc. You can calculate this ratio using some simple math (Total Debt/Total Income = DTI) or use a "Debt-to-Income Calculator".
If you have evaluated your situation and come to the conclusion that you are indeed "Ready to Buy", then CONGRATUALATIONS! Check out my posts on "How to Buy Your 1st Home in 24 Months or Less", if you feel that you are truly ready or have any questions that have not been answered in these posts, feel free to contact me. I look forward to working with you and making your dream of homeownership a reality.