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A first-time homebuyer

Posted on Monday, March 7, 2022 in Mortgage Lending

First-time Homebuyer? Answers to Four Commonly Asked Questions

What’s my credit score and why does it matter?

Your credit score is the single most important factor in determining your rate. First National Bank’s Vice President and Mortgage Loan Officer Sara Lehman has analyzed hundreds of mortgages during her career. She has discovered that raising your credit score lowers your rate more than reducing your debt-to-income ratio or boosting your down payment.

So, if you have a choice between paying down credit card debt or scraping together a down payment, it’s probably wiser to tackle the debt, because that should help your credit score.

How much home can I afford?

Find out how much home you can afford with our mortgage affordability calculator. Get an estimated home price and monthly mortgage payment based on your gross income, total monthly debt payments, predicted monthly insurance payment and yearly property taxes, down payment, loan term, and interest rate.

How much should I save for the down payment?

The earlier you start saving for a home the better. Minimum down payment for a first-time homebuyer is 3% of the home’s purchase price.  However, if you want to avoid mortgage insurance, you will need a 20% down payment

To save quickly and efficiently, you might want to consider creating a budget using the FREE tool known as Money Management. A budget will allow you to identify any wasteful spending, like eating out too often, and determine how much money you can allocate to saving for a down payment each month.

Another helpful financial resource is Power Banking. This tool allows you to set aside a certain amount of money from each paycheck and have it automatically transferred to your savings account. If you put aside $150 a week from your paycheck, you will save $7,800 plus interest within just a year. 

What’s a debt-to-income ratio?

Your debt-to-income ratio measures how much of your monthly gross income goes toward repaying your debts. This percentage is one way First National Bank’s lenders judge your ability to repay the mortgage loan.

To calculate your debt-to-income ratio, divide your total monthly debt payments by your gross monthly income.

For example, say you have a mortgage payment of $1,000 a month, a $300 car payment, and you pay another $150 a month toward student loan debt. Your monthly debt payments are $1,450. [$1,000 + $300 + $150 = $1,450]

If your gross monthly income is $4,000, then your debt-to-income ratio is 36.25%. [$1,450 ÷ $4,000 = 36.25%]

According to the Consumer Financial Protection Bureau (CFPB), a 50% debt-to-income ratio is typically the highest ratio a borrower can have and still get a qualified mortgage. A qualified mortgage is a type of mortgage that meets certain federal guidelines to help ensure that the borrower will be able to afford their loan.

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  2. home buying
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