The Mortgage Process

Who qualifies as a first-time home buyer?

If you've never bought a home before, you qualify as a first-time home buyer. However, according to the FHA and many lenders - as well as many first-time buyer down payment assistance programs - you can still qualify as a first-time buyer if you have not owned a primary residence for at least three years.

You could also qualify as a first-time buyer if:

• You're a parent who divorces or separates from your spouse and the last primary residence you owned was jointly owned with your ex-spouse.

• You have owned a primary residence within three years of this purchase but the primary residence you owned has not been permanently attached to something like a foundation (such as a mobile home or RV).

• You have owned only one piece of property that has sustained enough damage that it doesn't meet local and state building codes and the cost to repair the property is higher than it would be to buy a new property.

Some programs have different requirements. So ask your lender for down payment assistance to find out whether you qualify as a first-time buyer.

How much should my down payment be?

Down payments generally range between 3.5 and 20 percent of the home's purchase price, but there are some programs that allow you to pay less - and you can always put down more. If you put down less than 20%, you'll most likely be required to buy Private Mortgage Insurance (PMI) and continue paying for it until you've built 20% equity in your home.

How much of my income should go towards my mortgage?

When you own a home, the ideal percentage of your gross monthly income that should go toward your mortgage is 28%. (Taxes and homeowners insurance are often, but not always, rolled into your monthly mortgage payment.)

When lenders evaluate your application for a loan, they'll check your debt-to-income ratio, or DTI. Your DTI is the amount of debt you pay each month in relation to your gross monthly income. Lenders typically want your DTI to be less than 36 percent, with 28 percent or less going toward your mortgage payment. This gives lenders a sense of security that you won't be too financially strapped to make your payments. Your DTI includes all your monthly obligations, such as: credit card payments, student loans, car payments, personal loans, housing expenses (rent or mortgage)

Should I have the house inspected?

One of the most important things you can do prior to purchasing a home is to have it thoroughly inspected by a professional. A majority of states require sellers disclose any potential or known problems with a home. However, the homeowner may not always be aware of problems or reveal everything they are aware of. This is why it is highly recommended that you have a full home inspection performed. This will alert you to any problems that may affect the structure of the home or any other problems that may not have been disclosed.

What other costs will there be besides the mortgage?

In addition to the monthly mortgage payment that you will be responsible for, you should also consider the other expenses associated with owning a home. These expenses may include property taxes, HOA fees, PMI (private mortgage insurance), utilities, closing costs and possibly other miscellaneous expenses.

A loan officer can help breakdown these expenses and keep you from being caught off guard.

How long does it take to buy a house?

This is not an easy question to answer because every home sale is truly different. After you finally find a home you want to buy and your offer is accepted, it can typically take 30 – 45 days to close on your loan. So, if it takes 4 months to find a home you like, it may take another couple months to close.

What are the financial advantages of being a first-time home buyer?

Many first-time home buyers are eligible for tax credits, such as:

• Mortgage interest: Your mortgage must be on a home that's eligible for these types of deductions, your mortgage has to be secured by your home, and you must have a mortgage that's lower than $1 million to deduct mortgage interest.

• Points: If you paid points, which are a form of prepaid interest, you could deduct them in the year that you paid them - but only that year.

• Private mortgage insurance: If you had to buy PMI to make up for a less-than-20-percent down payment, you may be allowed to deduct it for your primary residence.

• Real estate taxes: Municipal and state governments charge real estate taxes based on the value of your home, which you may be able to deduct. You might also be able to deduct taxes you paid at settlement or to the seller for the year.