Getting Your First Home Loan: A Simple Guide for First-Time Home Buyers
Purchasing a home for the first time is one of the most exhilarating experiences one can ever come across in life. But, being able to save enough for the down payment as well as qualifying for a mortgage may seem impossible especially for first-time homebuyers. If one follows the steps and prepares adequately, it is quite easy to achieve the process. Read this detailed guide to learn all the necessary information about getting a first home loan for beginners.
How to Save Money for a Down Payment It is common for lenders to ask for a down payment of between 3-20 percent of the purchase price. In general, conventional loans require 3-5% down payment, though there are exceptions. Ideally, one should aim to save up to 20 percent in order to avoid making payments for private mortgage insurance. Set up a financial plan, cut back on spending where possible and begin to squirrel away money towards your target. This may take several months to years depending on your financial position.
Improve Your Credit Score Credit score is important in ensuring that one gets the best rate that is charged on the mortgages. Check your credit reports from the three credit bureaus of Equifax, Experian, and TransUnion. Make sure the information is correct and try to raise your score. It is agreed that all the bills of the company should be paid as and when they are due from now on. Reduce the outstanding amount on credit cards and loans. It is advisable to avoid incurring new debts as much as possible. Generally, all the lenders expect a borrower to have a credit score of between 620 and 700. The higher of the score the better.
How to be Pre-Qualified for a Loan It is advised to obtain a preapproval letter from a lender before you begin your search for a house. This indicates to the sellers that you are capable of paying for that product or service and also fix an interest rate and loan terms that would last for 60-90 days normally. Expect to disclose your income, employment status, assets, liabilities, credit history and other financial details. Do not incur other debts after receiving preapproval for a loan or credit since this will affect your chances.
Shop for Lender Rates Collect and analyze interest rates and fees provided by various lending companies. There are many online lenders such as SoFi and Lenda who offer very low rates. Some other places, where you can get information include the banks, credit unions and the mortgage brokers. Finally, it is advisable to consider whose rate and terms are most favorable to your circumstances. As soon as you get accepted an offer on a home, lock in your rate.
Select the Right Type of Loan First-time buyers can easily meet the requirements of special loan packages like FHA, VA and USDA loans, among others, that require low down payments and acceptable credit scores. Fannie Mae and Freddie Mac conventional loans also have 3% down features. If your resources are somewhat more constrained there are things like “physician loans” and state/local down payment assistance programs.
Gather Required Documentation Be prepared to provide extensive paperwork proving your financial history and eligibility when applying for a mortgage:Be prepared to provide extensive paperwork proving your financial history and eligibility when applying for a mortgage:
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Tax returns and tax documents
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The last thirty days paycheck vouchers
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This includes W2s and 1099s from the last two years
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Checking account, brokerage account, and pension plan documents
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Details about any outstanding debts/assets
- Driver’s license or other form of official identification
Order an Appraisal and Home Inspection The lender will want to know that the property is worth the price you negotiated and will, therefore, ask for an appraisal. You should also obtain a home inspection from an inspector not affiliated with any lender to find out whether there exists some problem with the home that may affect the lending decision or if there are problems that are likely to arise after closing. That means that it is the best time to negotiate for redeeming the fixes or price adjustments.
Activate Home Insurance Home purchasing companies and mortgage companies expect home buyers to secure a home insurance policy in the event of damages and liabilities after sale. Activation is proof that the property in question can be insured. It is advisable to renew the policy on a yearly basis to help avoid any problems.
Complete Final Underwriting Towards the end, the lenders will review your financial statements, appraisal report, title reports and everything else to confirm compliance with the title to close as planned. Job and income changes must be done when there are no other changes that can take place in the economy. Inform the loan officer as soon as possible about any problems that occur.
Attending Closing This is the last sit down session you have with your mortgage company and it is where you finalize all the paperwork regarding the loan and the house purchase. To ensure they get a mortgage, they should bring proper identification, a cashier check for the closing costs, and be ready to pay one or two months’ worth of mortgage to open an escrow for taxes and insurance. Get to the end of the game and retrieve the keys!
Purchasing a first home is quite a complex process that requires organization and a lot of effort. If you adopt these important procedures to start with, then it means you are on the right track to qualify and secure the best mortgage loan. Keep yourself on task, keep your questions and concerns in check as you progress and do not hesitate to rely on your real estate agent and loan officer. They are rooting for your success! Have fun and all the best in your first home buying experience.
