Preparing To Apply For A Mortgage As A First Time Buyer In Florida
Taking the step towards homeownership is a common dream for many. While the number of people buying their first home in the states has dipped, beginner homeowners continue to dominate the market in states such as Florida, thanks to the affordability of homes in the sunshine state. In fact, homeownership still remains a goal on the radar for many, with homeownership rates in Florida clocking in at 65.5 percent for 2018, well above the national average. However, finding the perfect home for your family is only a small part of the puzzle. Securing the finance for your first home is another. Taking the time to prepare for the application process makes all the difference between approval and rejection.
Monitor And Improve Your Credit File
Around 74 percent of young homeowners admit they did not check their credit report prior to applying for a mortgage, according to credit reporting company, Experian. This means they would have inadvertently narrowed their mortgage options and the interest rates they paid. One of the first things lenders look at is your credit file, so in the lead up to your application, maximize opportunities to get it in the best shape possible. Start with securing a copy of your credit score from each of the three different credit agencies along with your FICO score, since your lender will most likely review these in your application process. The average FICO score for mortgage applications is 704, while 75 percent of applicants scored above 700, so use this as a guideline. Agencies such as All Florida Tax recommend paying down your credit balances to 30 percent or less of your debt-credit limit ratio. If you have multiple credit cards or high-interest debt, you can merge them into one lower interest payment. Any outstanding debt payments should be made on time, and finally, hold off on opening any new credit accounts for at least six months.
Build Up Your Financial Contribution - Including Closing Costs
Another part of the application process that is often overlooked are the costs associated with buying a home. Approximately 29 percent of buyers underestimated the costs, including the legal and estate agency costs, along with Stamp Duty. Interestingly, 44 percent of younger homeowners who are likely to be first time buyers (25-34 years old) said they did underestimate these costs. Double down on your expenses and build up a sizable cash deposit by savings or by creating/exploring new income streams. In addition, you should also budget for home closing costs. For the state of Florida, this averages 1.98 percent of the purchase price. With the average home selling between $200,000- $300,000, this should be set at a minimum of $3,960- $5,940.
Opt for high interest and tax-free accounts, such as an IRA or specific saving accounts. For first time buyers, you are allowed to withdraw up to $10,000 without paying a 10 percent early withdrawal tax. However, the withdrawal should be used to make a deposit on a home within 120 days. Alternatively, first time home buyers in Florida can access home loan programs such as the Florida Assist Second Mortgage, the Florida Mortgage Credit Certificate Program or conventional loans only requiring 3 percent deposits.
Get Your Records In Order
In addition to getting your finances mortgage-ready, you need to begin organizing documentation for the application. As an employee, you will need your remuneration information such as past pay stubs (at least six months) along with your employment contract and any additional benefits. If you will be applying as a freelancer or self-employed, you will need to prove your income to the lender. Additionally, the self-employed are responsible for their taxes, so don't forget to hire an accountant to accurately prepare your personal and business tax return for at least the last two years. While government agencies like the FHA require the show of at least two years of tax returns, private lenders can ask for less. In Florida, some conventional loans, for instance, ask for one year’s worth of personal and business tax returns. You will also need to show track records of income earned to establish an earning pattern. This is easily done by saving past invoices issued, along with your business license.
If you find yourself somewhat confused about navigating the process as self-employed (or any aspect of the application process), consider speaking to a mortgage broker, who will be able to pinpoint lenders willing to work specifically with self-employed applicants, and the best way to present yourself as a favorable applicant. Buying a home is likely to be the largest investment you make in your life, and one that you will need the backing of financial lenders to achieve. Preparing adequately for the application process can help you achieve this, and your dream of homeownership.