5 tips for first-time homebuyers

Organize documents

When applying for mortgages, homebuyers must document their income and taxes.

Typically, mortgage lenders will request two recent pay stubs, the previous two years' W-2s, tax returns and the past two months of bank statements -- every page, even the blank ones.

"Why it has to be every single last page, I don't know. But that is what they want to see. I think they look for nonsufficient funds or odd money in or out," says Floyd Walters, owner of BWA Mortgage in La Canada Flintridge, California.

Buying a home can take a long time, but knowing what you need and where to find it can save time when you're ready.

Qualify yourself

Ideally, first-time homebuyers would know how much they can afford to spend before the mortgage lender tells them how much they qualify for. Bankrate's "How much house can I afford?" calculator will help.

By calculating their debt-to-income ratio and factoring in a down payment, buyers should have a good idea of what they can afford, both upfront and monthly, when it comes to their home.

Though there's not a fixed debt-to-income ratio that lenders require, the old standard dictates that no more than 28 percent of your gross monthly income be devoted to housing costs. This percentage is called the front-end ratio.

The back-end ratio shows what portion of income covers all monthly debt obligations. Lenders prefer the back-end ratio to be 36 percent or less, but some borrowers get approved with back-end ratios of 45 percent or higher.

"Find out what you can afford and then you can back into everything else. We know the money you have available to put down, we know the monthly payment and we can solve (the equation) for the third variable -- and that is the home price," Winesburg says.

Figure out your down payment

It takes effort to scrape together the down payment.

There are programs that can assist buyers with qualifying incomes and situations.

"I've helped arrange assistance loans for $10,000, which are interest- and payment-free, and forgivable after five years. Although considered a loan, they're more like grants. Other programs can provide up to $40,000 interest-free," says Winesburg.

"Each state is different, but most of this money comes from the HOME Investment Partnership Program, which is a federal block grant to create affordable housing," he says.

Finally, speak with mortgage lenders when you're starting the process. Check with friends, co-workers and neighbors to find out which lenders they enjoyed working with and ask them questions about the process and what other steps first-time homebuyers should take.


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