If you are a first-time home buyer looking for Indianapolis homes for sale and trying to take advantage of the $8000 First-time Home Buyer Tax Credit, you may have questions about how to obtaining a mortgage in Indiana.
Attempting just about any task for the first time can be frightening. Add on to that what will probably be the biggest purchase you’ll ever make and it’s a recipe of panic for many Indianapolis first-time home buyers. One of the elements people panic about is obtaining a mortgage and all the potentially confusing details surrounding the process.
For example, should you choose a 30-year or 15-year mortgage, if you can afford it? Should you go FHA or Conventional? Fixed or adjustable interest rate? Should you put money down or try to finance 100 percent? Are interest rates good right now?
You may already be working with an Indianapolis REALTOR® while beginning to navigate through the mortgage process and that’s good. There are many steps to getting to the closing on a home and a professional who is trained in the Indianapolis real estate market can help you with the processes for obtaining a mortgage. Likely they will also direct you to contacting a mortgage representative who can begin to look at your credit score and determine for how much you qualify.
One of the first financial steps you will take in making an offer on a home is getting pre-approved for a loan. While this does not mean you are set regarding obtaining the financing necessary to purchase a home, it is an indicator that your finances are in order to move in that direction. Sellers love to see this potential when submitting an offer and it often sweetens the deal.
So, if you’re interested in becoming an Indianapolis homeowner, there are a few steps to take to get started.
One, take a hard look at your budget and be honest with yourself how much you and your family can afford to spend each month for housing. Fannie Mae has set two specific debt-to-income ratio requirements that are standard for conventional loans. The first ratio is that your monthly payment with interest, plus taxes and insurance, must not be more than 28 percent of your gross income monthly. There are exceptions that may increase this to 33 percent.
The second ratio takes into consideration all of the debt payments you make a month, including mortgage, car payments, credit card payments, etc. This ratio cannot exceed 36 percent of gross income monthly.
Two, get a jump start of determining your official financial situation by obtaining a credit report. One way to do this is to call a few lenders you are interested in working with and inquire about what credit agencies they utilize. From this list, call the credit agencies yourself and ask for your credit report. For most states, a free copy is available to you once a year from United States’ major credit agencies.
Look over this report for discrepancies and if there are any, start the process to correct them, such as credit lines that aren’t yours. While these kinds of mistakes aren’t necessarily common, they do occur so look over it carefully. Credit scores are determined by specific factors that a lender can go into depth with you. If you have a bad credit score, there is still hope. Programs are available to help you raise your score.
Three, educate yourself about the details of financing, including such items as the types of mortgage, fees, points, interest rates, etc. You can begin this process with your REALTOR® and mortgage representative, as well as conducting your own research.