Weighing Your Options as a First-Time Homebuyer How to Maximize Your Borrowing Potential

Date: April 25, 2022

Buying your first home is exciting, but at times it can also feel stressful and overwhelming. During this process it seems as if there are endless decisions that need to be made, none of which is as important as, choosing the right lender.When selecting the best borrowing option for your situation, it is important to consider all of the factors, but for most first-time home buyers, it can be difficult to determine what those factors even are, let alone which borrowing option is right for you.

At Affinity Federal Credit Union, we believe financial education is of vital importance to ensure that our members are best prepared to face every financial decision presented to them.  Having a Mortgage Loan Officer working with you every step of the way, will help to streamline the borrowing process. Their aim is to keep you informed while knowing how to maximize your borrowing potential. This can help to take some of the stress out of what may be the largest purchase of your life.

Gathering your financial information

Understanding what mortgage lenders will need from you to evaluate your loan potential is the first step in securing a mortgage. Home mortgage loan interest rates are determined by your creditworthiness. A mortgage lender calculates that by looking at two main factors:

• Debt to Income Ratio (DTI) - this is looking at all of your debt (credit cards, auto loans, student loans, etc.) and your income to make sure you earn enough money to add a mortgage to your monthly debt payments. Typically, to qualify for a mortgage your DTI needs to be below 45%, which would include your future mortgage payment. For example, if you earn, $5000 per month, 45% would be $2,250.  Meaning your principal, interest, real estate taxes, homeowners' insurance and any other current debt you may have (credit card, student loan, car loan payments etc.) should not exceed $2,250.
• Credit History - when you start thinking about buying a home, checking your credit score and history is important. Your credit history shows a mortgage lender that you make on-time monthly payments on your debts, as well as other determining credit worthiness factors. Affinity Federal Credit Union members have access to free credit counseling services, so if you feel like your credit score needs a boost it's recommended that you talk to a professional before taking any action on your own.

During the loan process, you will also need to provide financial documents including pay stubs, W2's and/or tax documentation for the two previous years, and bank statements. Your loan officer will guide you through what exactly is required based on the loan type and lender requirements.

Evaluating the options and choosing what is right for you

As the borrower, you have options when it comes to which type of mortgage you choose, and to assist you with that choice, Affinity Federal Credit Union members have the opportunity to talk to a loan officer free of charge to evaluate each option and to maximize your borrowing potential. Options include:

• Low or no down payment loans for qualified buyers.
• Fixed-rate Mortgage - In a fixed-rate mortgage, the rate does not change throughout the entirety of the loan. This is often preferred by buyers so there are no changes to the loan amount during times of inflation.
• Adjustable-rate Mortgage - An adjustable mortgage-rate is sometimes a better option during high-rate environments. Terms are different for these loans at different lenders so it is important to ask the loan officer how long any introductory rate will last and how often the rate can be adjusted.

With the array of options available for first time home buyers, it is important to connect with a trusted professional to help guide you through these decisions and work with you to pave the way to homeownership. A mortgage loan officer is there to assist you throughout the entire loan process, from the very first step of getting approved, all the way to when you are walking through the front door of your home.

The purchase of your first home should be exciting. If you have any questions about the process as you embark on this journey, feel free to reach out to a team member at Affinity Federal Credit Union for answers and support.

This information is for informational purposes only and is intended to provide general guidance and does not constitute legal, tax, or financial advice. Each person's circumstances are different and may not apply to the specific information provided. You should seek the advice of a financial professional, tax consultant, and/or legal counsel to discuss your specific needs before making any financial or other commitments.