Did you know that first-time homebuyers currently make up about 33 percent of the market? Are you a first-time homebuyer yourself?
If so, you probably have a lot of questions about the mortgage process, from “how to get mortgage loans?” to “what is a first mortgage?”
We’re here to answer all of your most pressing first mortgage questions. Read on to learn about seven important factors you ought to keep in mind as you begin applying for loans.
This information will help to make the process easier and help you ensure you don’t run into any unpleasant surprises on your way to becoming a homeowner.
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1. Know Your Credit Score
When you first start thinking about buying a house and applying for a mortgage loan, you should check your credit score.
Approximately 30 percent of Americans have no idea what their credit score is. If you’re getting ready to make a major purchase, such as buying a home, you don’t want to be part of this group.
Look up your credit score early so you know where you stand. This will also give you time to correct any issues or errors that may be dragging it down, such as inaccurate personal information or paid off loans or credit cards that haven’t been updated yet.
If you know your credit score and know that it’s not as high as you’d like it to be, you’ll also have time to raise it before you start applying for loans (which require additional credit checks that can bring your score down even more).
2. Know What You Can Borrow
Spend some time doing the math to figure out what you can afford to borrow for a home, too. This means taking a good hard look at your finances and calculating how much of your monthly income you can afford to spend on a house payment.
In general, it’s best if your house payment (which includes taxes and insurance) does not exceed 28 percent of your pre-tax income.
It might seem tedious to do this math, but it can save you a lot of money later on. It’ll also help you avoid getting into a situation where you’re struggling each month to make ends meet just so you can pay your mortgage.
3. Get Your Documents in Order
Make sure you have all your essential documents together before you start applying for loans, too.
Some basic documents you’ll need to have on hand include copies of your tax returns, copies of recent pay stubs, your driver’s license, and your social security card. If you’re married, you’ll need a copy of your marriage license as well.
Gather all these documents and keep them in a binder or folder. That way, you have easy access whenever you need them and don’t have to waste time digging through your file cabinet.
4. Get Pre-Approved
It’s a good idea to get pre-approved before you start shopping for a house as well. A pre-approval won’t have a negative impact on your credit score, but it helps you to get a clearer picture of what kind of mortgage loan you can get.
This helps you narrow down your options and avoid falling in love with a house that’s way outside of your price range. You can also use it as a bargaining chip.
Since you’ve already been pre-approved, your chances of everything going through with the loan process increase. This can definitely work in your favor as a buyer, especially if there are other people who are also interested in the same house as you.
5. Start Saving for a Downpayment
The sooner you can start saving for a downpayment, the better. In fact, you ought to start saving long before you plan to begin shopping for a house.
A larger downpayment will help to lower your monthly loan payments. It can also help you to qualify for better interest rates since lenders will view you as less of a risk.
If you don’t have a lot of money saved for a downpayment, don’t panic. There are some mortgage loans that cater specifically to people like you. However, if you can save up for a downpayment, it definitely won’t hurt you.
6. Look into FHA Loans
If your credit score is lower than you’d like and you don’t have time to dedicate to rebuilding it before you start shopping, you’re not out of luck. Some loans, such as FHA loans (which are backed by the Federal Housing Administration), are designed to cater to those with less-than-ideal credit scores.
To qualify for an FHA loan, you need a minimum credit score of just 620. These loans also require lower down payments (3.5 percent of the price of the home), so they’re also a great option for those who don’t have a lot of money saved up.
7. Shop Around for the Right Lender
In the same way that you want to shop around before you decide on a particular house, you also ought to shop around before you decide on a particular lender.
Find out what kinds of loans and interest rates different lenders can offer you before making a final decision. Remember, too, that small differences can add up to big savings over time. It’s worth it to consider all your options.
Don’t discount smaller lenders like Kingdom First Mortgage or online lenders, either. They can often provide you with better rates and are more flexible when it comes to their approval process.
Apply for Your First Mortgage Today
Now that you know more about what to keep in mind when applying for your first mortgage, it’s time to go ahead and begin the application process. Remember these tips and you’ll have a much easier time applying and having your application approved.
Do you want to learn more about applying for home loans or other types of loans? If you want to borrow money from a trustworthy lender, consider applying with us at Bonsai Finance.
Contact us today to learn more about our personal loan options or to fill out an online application.