Although most central Texas first-time homebuyers aren’t plagued with wildly high price-per-square-footage, buying a first home can be daunting. Decoding acronyms, understanding loan types, and figuring out how much home you can afford may seem complicated.
However, your ability to get approved for a mortgage really lies with three factors:
- Debt-to-Income Ratio (DTI)
- Credit Score
- Down Payment
While there are other factors in getting approved for a mortgage, these three are responsible for the bulk of it.
The Breakdown: How DTI, Credit Score, and Down Payments affect mortgage approval for homebuyers
The single most important factor for mortgage approval is your debt-to-income ratio (DTI). Generally, a DTI of 55% is the highest ratio you can have if you’re seeking mortgage approval.
If you have a monthly income of $4,000, your monthly debts would have to amount to a maximum of $2,200. Student debts are often one of the larger factors with a first time homebuyer’s DTI. Monthly debts also include your home/rent payment.
Since rent payments widely vary depending on location, DTI commonly correlates with where people live. A prospective first time homebuyer living in San Francisco with an outrageous apartment rent is likely to have a higher-than-average DTI. Prospective central Texas first time homebuyers will generally have lower DTIs. That’s good news!
According to TIME, the median cost of a one bed rental sits at a sky-high $3,590/month!
Your credit score (composed by five main factors) determines which loan options are available to you. For example, an FHA loan with The Wood Group (popular for first time homebuyers!) allows those with a credit score of 580 or above to make a down payment of only 3.5 percent. An FHA loan also allows for both fixed and adjustable-rate options.
The size of your down payment will also determine your eligibility for mortgage loans. The VA loan and the USDA loan allow for 100% financing – that is, no down payment at all.
However, you wouldn’t be eligible for a conventional mortgage or an FHA mortgage without a down payment. In many cases, higher down payments result in lower interest rates.
The Bottom Line for a First Time Homebuyer
Simply put, your eligibility for mortgage programs is based on your perceived risk from the perspective of the lender. Mortgage lenders must calculate the perceived risk of a borrower not being able to make their payments.
Although there are loan options for almost everyone, a central Texas first time homebuyer who has a decent DTI, a solid credit score, and the ability to make a down payment will be eligible for a competitive loan.
With ten locations in the area, The Wood Group of Fairway offers some of the quickest response times and fastest closing times in the market for first time homebuyers in central Texas. Our expert loan officers would be more than happy to answer your questions about our personalized mortgage process. Begin the dream of buying your first home and contact us today!