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Tips for first-time home buyers

As temperatures heat up, so does the housing market. “For Sale” signs adorn lawns across the country.

But given the current economy, does this mean that it’s a good time to buy for first-time home buyers? For Eric Wright, assistant director of admissions at Brown Mackie College - Louisville, who has more than 12 years of experience in the mortgage industry, the answer is yes. “It is probably the best time to buy or refinance ever,” he says. “It is a buyer’s market, and interest rates are the lowest they have been in history. Also, home buyers can receive an $8,000 tax credit this year if they purchase a home by Dec. 1, 2009.”

Formerly a broker, banker and lender dealing with residential and commercial loans, Wright currently helps mainly friends and family members in meeting their financial needs.

In addition to the low interest rates most mortgage lenders are currently offering, the affordability of homes is rising. The National Association of Realtors Housing Affordability Index reported a 13.6 percentage point increase to 166.8 in January, which according to the association, signifies a new record high. In simple terms, this means that a single family earning nearly $60,000 annually could afford a home that costs $283,400 with a 20 percent down payment. A year ago, a single family with the same earnings and down payment could afford a $263,300 home.

Low interest rates. Check. Affordable pricing. Check. That’s all grand, but how do you know if buying now is a good time for you? “If you are first-time homebuyer who is planning on purchasing a home in the near future, the best advice I can give is to evaluate your financial situation,” says Wright. “Pull a credit report on yourself, calculate all your debt, know your liquid assets and have reserves, and expect a few extra monthly bills like homeowner dues, waste management and water.”

Wright also conveyed that it’s important to know your debt-to-income ratio, as this is how an underwriter will determine your income qualifications. To get this number, add up your entire monthly outgoing bills and divide the total by your monthly gross income. The key is to be under 45 percent.

A person is recommended to have no more than 28 to 36 percent of their income dedicated to debt payments through conventional debt-to-income. Non-conventional debt-to-income for Federal Housing Authority Loans allows 29 to 41 percent of a household income. Veterans Affairs loans require a calculation of funds for effective income and family support, which a loan officer can assist with, according to mortgageunderwriters. com.

Next step? Shop around. Wright advises to get at least three to five offers from lenders to compare interest rates and fees, and emphasized that you should never pay any application fees. He also says that it’s important to know what documents lenders require to help facilitate the approval process, including:

• A full month of pay stubs

• W-2s for the past two years (If you’re self employed, you’ll need to provide your tax returns in full.)

• Two months of bank statements

• Two months of statements related to your 401(k), savings or any other liquid savings account

• If currently renting, proof of rental payments and landlord’s contact information

The Federal Housing Administration insures loan products that benefit first-time home buyers — many of which offer down payments as low as 3.5 percent of the purchase price. After meeting FHA credit qualifications, borrowers are eligible for 97 percent financing. The upfront mortgage insurance premium can be financed into the mortgage upfront. For more information on FHA programs, visit www.hud. gov/buying/index.cfm.

Whatever you decide, knowledge is the key to borrower protection, so here are some additional resources to help you get started:

• U.S. Department of Housing & Development -

• National Association of Realtors -

• Home Loan Learning Center -

– Courtesy of ARAcontent