"How Much Will They Lend Us?" Loans for First-Time Homebuyers
Considering buying your first home? You might be wondering how mortgage lenders in Maryland determine your home loan amount. When it comes to loans for first-time homebuyers, here's what you need to know.
Are You in a Position to Buy a Home?
As you're looking into loans for first-time homebuyers, don't forget to ask yourself the hard question: can you afford to buy a house? Just because you get approved for a certain amount doesn't mean the best thing for you or your family financially.
In addition to having enough money to cover the downpayment and closing costs, it would be ideal to have minimal debt along with three to six months of expenses saved.
Understanding Debt-to-Income Ratio
On the surface, debt-to-income ratio may seem self-explanatory: it's the amount of your monthly debt you have relative to your monthly gross income. Mortgage lenders use DTI to guarantee that you make enough money to pay for both your new mortgage payment and any existing monthly obligations like credit cards, car loans, and student loans.
As a general rule of thumb, most lenders prefer your DTI to be no greater than 36%, including your mortgage. For instance, someone who makes $5,000 per month and has $500 in monthly debt would have a 10% DTI.
How does that translate when calculating loans for first-time homebuyers? With a 10% DTU at that income, mortgage lenders would generally approve the borrower for a maximum mortgage payment of $1,300 per month. This amount would also factor in private mortgage insurance, homeowners insurance, and property taxes.
Your Credit Score
Along with DTI, your credit score will factor heavily into the mortgage lender's decision. As you may know, credit bureaus calculate your score based on credit history, payment history, total debt, types of credit, and new credit applications.
It's not the end of the world if you have less-than-perfect credit score. In fact, in many cases, you can still get a loan. You might just have to pay a higher mortgage rate, which in turn will turn into a higher mortgage payment.
Our best advice is to pull your credit report. Some credit bureaus even let you view this information for free. Looking at your credit score does two things:
It lets you know what derogatory items are on there.
It helps set expectations in terms of approval probability.
How Much Will I Have to Put Down?
While there are special first-time buyer programs and exceptions for Veterans Affairs (VA) loans, you'll generally need to put a decent amount of money down. According to the National Association of Realtors, the median homebuyer makes a 12% downpayment, which doesn't include closing costs needed to finalize the mortgage.
Let Equity Mortgage Guide You Through the Process
Equity Mortgage Lending knows a thing or two about loans for first-time homebuyers looking for homes in Maryland. Our mortgage lenders will take the time to make sure you understand every step in the loan process.