The process of obtaining the first mortgage for first time home buyers
Purchasing a home is one of the biggest accomplishments in life, but getting your first mortgage may be challenging. First time home buyers may not understand the mortgage process and factors that are considered when approving a mortgage. This is a guide that will assist first time buyers going through the process of acquiring a mortgage.
Savings for a Down Payment There is usually a down payment that ranges from 3-5% of the purchase price that most lenders will expect you to pay. There are some exceptions; for instance, some special programs like FHA loans may allow down payments of as low as 3. 5%. Lenders like down payments because it shows that you are willing to invest in the house hence the more the down payment the better. Aim at a down payment of 20% if you can because this will save you on private mortgage insurance.
Check Your Credit Score Applying for a mortgage also requires a good credit score. First time home buyer programs have stringent requirements and a good credit score of between 620-680 is mandatory. Check your credit scores early enough and try to build up your credit rating. Pay all bills on time, correct any inaccuracies on your credit report and pay off your credit balances. Each additional point could qualify you for a lower mortgage rate.
Reduce Debt Banks will scrutinize your expenses and debts to confirm whether you are capable of repaying the loan in the form of a mortgage. Eliminate debts such as loans, credit cards and any other outstanding debts to ensure that the ratio of debt to income is negligible. Aim at having the total monthly obligations not more than 36% of your gross monthly salary. Lower debt enhances the ability to get credit approval.
Gather Your Financial Documents You will be required to produce income documents, tax returns statements, bank statements, statements of investment accounts and so on whenever you apply for a mortgage. Ensure all the necessary financial documents are ready to avoid complications with the documents when applying for a home loan.
It is important to know how much you can afford to spend when buying a home. Include a budget that takes into account how much a person can afford to spend on a home, including the down payment and monthly costs of mortgage payments, homeowners insurance, property taxes and other housing costs. The majority of first time home buyer programs contain pre-purchase budget and credit counseling as conditions for participation. Go for counselling early so that you shop within your ability to pay as required. Online counseling can also assist in developing a personal budgeting plan towards home ownership depending on your financial status and life demands.
Research Mortgage Options Get acquainted with the various First time home buyer home loan programs that are present in the market. FHA mortgages permit borrowers to pay as little as 3. 5% of the price of the house while VA mortgages do not even require any deposit for qualifying military personnel. USDA loans have 0% down loans for areas that are considered rural by the USDA. Down payment assistance programs offer money to pay for some or all of your down payment and they do not have to be repaid. Awareness of the options will enable you to select the programs suitable for your circumstances and budget.
Selecting the Best Mortgage Company Firstly, not all mortgage lenders are involved in dealing with first time buyers which explains why selection of the right lender is very crucial. Small community banks and credit unions may have better first time home buyer mortgage products that are worth considering. Get recommendations from friends or use first time home buyer websites like Bankrate or HSH to find the best lenders. After choosing the right lender that suits your needs, get pre-qualified as early as possible so that you will have an idea on the initial pricing and loan amount that you can get as you go shopping for a house.
Be Prepared to Move Quickly When Bidding Selling a home is a very competitive field in which homeowners enjoy numerous offers that are above the listing price in the first days on the market. So, it is advisable to work with your agent to always be on top of the new listings in the targeted neighborhoods. Set up showings and submit offers very fast for houses that fulfill your needs as the demand is always high for the properties. Having financing pre-approved will give your bids an edge as soon as you step into the bidding process.
Beware of Predatory Lending But there are some lenders who attempt to exploit the first time buyers and provide them with high fee or high interest loan products. Stay protected by ensuring that you compare the costs and rates of lenders on the same page. Avoid teaser rates that may come with low interest rates but adjust later to a level you cannot afford to pay. Stay away from no-closing mortgages as these include fees in the principal amount, which are actually more expensive in the long run. Avoid predatory lending by ensuring that you take time and research on the lenders and the loan terms.
Purchasing that first home begins your journey to homeownership and helps you establish equity and security. Adhering to these key steps assists first time home buyers to have a clue on what lenders expect of them and be in a better position to meet all the requirements that lead to mortgage approval. Be patient when it comes to mortgages and do not give up even when your applications are rejected. So, with smart preparation, money management discipline, and sho
