Owning a home provides countless benefits, from the convenience of having a private living space to having a steady, predictable payment plan every month to the chance of accumulating equity over time. Deciding on and attaining the right mortgage for your home can be one of the most critical parts of the home-buying process, and choosing the right mortgage for you can make a great impact on budgeting and homebuying ease. If you are a first-time homebuyer wondering how to get your first mortgage, the task can seem daunting to say the least. But read on, fearless homebuyer— in five steps you too can become the proud owner of a new home and all of its benefits!
1. Do Some Research
Research isn’t just for the kids’ science projects—the better informed you are, the better off you’ll be. Smart decisions take out all the guesswork and ensure a phenomenal first-time homebuying experience. Spend some time reading up on the different types of loans that you qualify for and which might be best for your bank account. Perhaps you don’t qualify for a VA loan, which requires a veteran status; instead, weigh the pros and cons of choosing either a Conventional Mortgage or FHA Mortgage. The former, while requiring a fairly good credit score, is a good choice for individuals or families with a low debt-to-income ratio and can afford an average down payment. An FHA Mortgage, while requiring insurance premiums, is often easier to achieve with as little as 3.5% down. Additionally, consider whether a fixed or steady interest rate might work best over a 15 or 30-year repayment period. If you’re still uncertain on how to get a mortgage plan that is best for you, get some personalized help by signing up for a first-time homebuyer education course—access to homebuying experts will save hours of guesswork and free up your schedule to scan those new listings.
2. Give Yourself Some Credit
Since your mortgage is one of the largest loans you will likely have, lenders will be looking closely at your credit score to determine your eligibility for loans. Stay informed by ordering a credit report for yourself and making sure that your scores are in a good range. FHA loans can be easier to qualify for, require lower credit scores (around 550), and often require a smaller down payment. If you need to qualify for a Conventional Mortgage (in the 650-680 range), you might need to raise your credit score. A few ways you can do this is by checking your credit score report for errors, paying off outstanding loan or credit card debt, and keeping balances low on fewer credit card accounts.
3. Run the Numbers
Again, when calculating your loan eligibility and future expenses, eliminate as much guesswork as possible. Grab your calculator and track how much you can expect lenders to allow you to borrow. You should be prepared to work with a lender checking everything from past and current income to subsequent taxes (at least two years’ worth), social security, retirement, and especially credit history. The kinds of debt that you hold and your credit score will directly influence how much the lender will be willing to loan and the properties that you will be able to purchase. Estimate your ideal monthly mortgage payments, insurance, and taxes, check your savings, calculate how much you will need for a down payment, and plan out a six-month emergency fund.
4. Do Some Q&A
Get your mortgage Pre-Qualified and Pre-Approved. Both will improve your chances of having a smooth bidding process. To get Pre-Qualified, you will meet with a lender and weigh all of your financials—including income and liabilities—to get an idea of your borrowing ability so you can begin to look for houses. This process is usually more casual and does not cost anything. To get Pre-Approved, the lender will check and verify everything so that you can securely apply for the best possible loan. Pre-approval usually carries a little more weight than pre-qualification, and having a pre-approved status before you bid can improve your chances of getting the property in the end.
5. Close the Deal
Lastly—and most importantly—begin your search for the perfect home to which you can apply your new, pre-approved mortgage. Once you have set a price, you will get approval from your lender and you can begin to close. Then, along with all the benefits of home ownership, you will have the added security of having chosen a great mortgage with your new homeowner status.