Buying a home for the first time can be a frightening process, especially if you’ve never had experience with obtaining such a large loan before. Becoming educated on the loan process is the best ways to ease your apprehension.
One of the first things you should do is review your credit report to make sure that there is no inaccurate information. Next, pay off as much of your credit card and loan debt as possible. You need to have had steady employment for at least six months before applying for a mortgage loan. Also, do not open any new credit cards or make any large purchases six months before your loan application. The goal is to present yourself financially stable to improve your ability to get a loan.
You likely already aware that mortgages sometimes require a down payment. To a lender, the ideal down payment is about 20% of the home’s purchase price. Lenders are more lenient when it comes to down payments for first time home buyers than they have been in the past. Many lenders have programs especially designed for first time home buyers that are unable to save for a down payment. If you don’t have a down payment for a home, don’t panic. There is a lender out there that will be willing to work with you.
If you have too much debt, whether credit card or loan, it may have an affect on your loan approval. Ideally, lenders expect borrowers to spend less than 40% of their gross monthly income on debts. Spending more than that amount sends the signal to the lender that you will be a risky borrower.
You may have heard of loan pre-approval. This is a process by which a lender estimates the amount you will be approved for based on your credit history and monthly income. It is a good idea to be pre-approved for a loan before you go home shopping. This gives you a better idea of the price you can afford to pay for a home. Be advised that a pre-approval is not a guarantee that you will receive a loan in that amount. Rather, it is the lender’s best estimate based on the information available at the time.
You can apply for a mortgage loan through a bank, savings and loan, credit union, or mortgage broker. When it is time to decide which mortgage you will ultimately borrow, you should consider interest rate (including points), type of loan, length of loan, and associated fees. Your goal is to pay the lowest amount of interest and fees possible.