Information about buying a home seems to appear everywhere online. However, finding the answers to your specific concerns may require a lot of research. Perennial Funding has compiled a list that contains 18 of the best mortgage tips for first time homebuyers.
Know Your Credit Status
Glance at your credit score and your credit rating before applying online for a home loan. Whether you are seeking a mortgage pre-qualification or a mortgage approval, a loan officer will probable ask you about your credit history.
Determine the Amount of Money You Will Need
Share some details about the amount of money that you plan to pay for a home. A loan officer may be able review some of your information to quickly determine if a viable funding opportunity exists.
When speaking with a mortgage loan officer, you should be prepared to provide an approximate amount for your recent earnings, assets and debts.
Maintain an Affordable Lifestyle
While you are preparing to buy your first home, it’s important to avoid becoming overextended. Maintaining low credit card balances and shopping for an affordable home could prevent you from taking on too much debt.
Make a Folder for Your Financial Documents
Secure your tax records for the past two years, recent bank statements, investment records and pay stubs for the previous month.
Obtain a Mortgage Pre-Approval Prior to Shopping for a Home
Your lender may provide a mortgage pre-qualification that gives you a basic overview of your buying power. Although, you should formally apply for a mortgage to see if you can get pre-approved for a home loan.
Pool Your Resources for a Down Payment
Review your savings, investments and documented funding sources from your relatives. Get bank statements that support your funds for a down payment on your home. Ask relatives who are giving you additional funds to provide a letter that indicates whether the money is a gift or a loan.
Determine Whether You Will Need Assistance With Your Closing Costs
First time buyers are typically focused on the amount needed toward the down payment for a home without considering additional funds to cover a variety of closing costs.
Knowing your financing needs before looking for a home could enable you to plan for additional savings, request more incentives from a homebuilder or ask your buyer’s agent to structure an offer that includes the seller’s help with closing costs.
Inquire About FHA Loans if You Have a Low-Down Payment or Credit Challenges
Mortgages that are backed by the Federal Housing Administration provide affordable loan options for first-time homebuyers.
FHA loans only require a down payment of 3.5 percent. Also, you might qualify for an FHA loan with a 580 credit score.
Get Information About Insurance Premiums
If your down payment is less than 20 percent of the cost of a home, there is a good chance that you will need to purchase private mortgage insurance. Additionally, you will need to purchase a homeowners insurance policy that provides protection against certain damages to your property.
Get a Low-Rate Loan
Compare the interest rates from several mortgage lenders, as well as the costs and fees that are factored into your annual percentage rate (APR).
Contact a Local Lender
Local lenders are great resources for first time home buyers who are seeking mortgage tips and competitive interest rates. Supporting a local mortgage lender that is involved in community-based activities is an empowering way to build a long-term relationship toward your future borrowing needs.
Consider a 15-Year Mortgage
If you can afford to make a slightly larger monthly payment, a 15-year mortgage can save you a lot of money on interest expenses.
Select a Fixed-Rate Mortgage or an Adjustable-Rate Mortgage?
Speak with a mortgage professional about fixed-rate mortgages and adjustable-rate mortgages. As a first-time homebuyer who plans to live in your home for just a few years, it might make sense for you to consider a three-year adjustable-rate mortgage or a five-year adjustable-rate mortgage loan.
Perhaps, you are interested in the security that a 30-year fixed-rate mortgage provides. If the economy faces a downturn, you will not be subjected to mortgage payment increases. However, you could submit an application to refinance your mortgage if interest rates become more attractive or if you decide to consolidate some of your debt.
Exercise Some Patience During the Loan Process
Mortgage lending guidelines are created for the masses. However, your financial situation is quite unique, and your lender might ask for an additional document or for an explanation to clarify its concerns.
Focus on your reasons to become a homeowner, exercise some patience and your receipt of the keys at settlement table will give you an opportunity celebrate.
Refrain From Increasing Your Existing Debt
Wait until you have completed the closing of escrow before applying for anything on credit, as additional inquiries for credit are likely to lower your credit score. New financing agreements will increase your debt-to-income ratio. Also, avoid increasing the balances on your existing revolving accounts.
Any of the aforementioned items could trigger a mortgage rate increase or disqualify you for a loan if your credit score drops below a certain level.
Many first-time homebuyers who obtain a mortgage pre-approval are largely unaware that most lenders will order an updated credit report prior-to-closing to verify that a borrower has maintained a favorable credit status.
Use Your VA Benefits
As a veteran of the U.S. Armed Forces, you may be eligible to receive financing for 100 percent of the cost of your home. Few mortgage loan programs can match the no money down benefit that is backed by the U.S. Department of Veterans Affairs.
Apply Your Tax Refund Toward Your Purchase
A windfall from the Internal Revenue Service could be helpful toward a down payment on your home or to buy down your mortgage interest rate. Use this year’s tax refund to become a homeowner!
Get a Rate Lock
Speak with a loan officer about locking in your mortgage interest rate. A rate lock could prevent your interest rate from increasing before the closing of escrow for your new home.
Whether you are a first-time homebuyer or you’re thinking about buying another home, you can refer to the above suggestions at anytime to stay on track toward your goal.
Based in Conshohocken, PA, Perennial Funding offers outstanding lending services for borrowers who are seeking affordable financing to buy a home or to refinance.
Contact us today for more information about FHA, VA or conventional mortgage programs.