- May 17, 2017
- Posted by: steve
- Categories: first home mortgage, first time buyers, mortgage articles
It’s time to buy your first home, but you’ve got to get a mortgage. Read this article to learn 10 tips for getting your first mortgage.
Thinking about getting your first mortgage?
Buying a home is exciting, but the mortgage process can be intimidating. There are different kinds of mortgages and lots of new terms to learn.
But this is a very important part of buying a home. In competitive home-buying areas, real estate agents refuse to even show a home to a prospective buyer if they aren’t pre-approved for a mortgage.
Getting your first mortgage is a complicated, serious process. However, if you are well-informed and do your research, there’s no need to be worried.
Starting with the correct initial steps and knowledge will streamline the process later on. Take a few smart precautions and you will avoid snags and have smooth sailing throughout the process of getting your first mortgage.
With these 10 key tips, you can quickly learn everything you need to know about your first mortgage and start the process with confidence.
Let’s unpack what you need to know about your first mortgage. Soon, you’ll be unpacking in your new home.
10 Tips for Getting Your First Mortgage
1. Get your credit report
A good credit score may not be enough when it comes to a mortgage. If you never miss a payment and haven’t maxed out your cards, that’s great.
But for your first mortgage, it’s also important to have lots of available credit and, ideally, less than a third of it in use.
If you get a free copy of your credit report, you’ll see how your credit stacks up so you can make a plan if it needs to be changed before you get your first mortgage.
Go to AnnualCreditReport.com to get a free credit report. Federal law permits you to get one free copy of your credit report every year from each of the 3 credit reporting companies.
Remember to maintain good credit habits, especially once you’re thinking about buying a home. Don’t miss payments or pay bills late. Even once can mess up your credit score.
2. Meet with at least one mortgage officer
Meeting with at least one, or even 2 or 3, mortgage officers is another important step of starting the mortgage process.
Mortgage officers will actually see a somewhat different credit score than the one you see on your free annual credit report. It’s important to go through a mortgage officer, rather than just assume the number you see on your credit report will be fine.
A mortgage officer will help you figure out if you have credit problems that you need to fix.
They can also help you know what sort of house will be in your budget, streamlining the search process later on. There’s no point in looking at houses now if it will turn out they’re ultimately not in your price range.
3. Have your paperwork ready
You can streamline everything by having all the documents you need handy throughout this process. Make sure you have your tax returns going back at least several years. Have up to a year’s worth of bank statements available as well.
Anytime you’re being lent money, proof of income is important. A mortgage is a major loan, so ample proof of reliable income is that much more important.
You’ll need information on any debts you have. If you’ve made any unusually large bank deposits, mortgage lenders will also want to know where that money came from.
4. Save money – lots of it
Even though your first mortgage is a type of loan, it still takes a lot of money to buy a home. Down payments can cost a lot: 20 percent is considered the standard or average amount you’ll need to pay down on a house.
There are some alternatives to this rule. A Federal Housing Administration mortgage requires just 3.5 percent down at a minimum. A conventional mortgage can go as low as 5 percent. A VA loan, only available to military veterans, may require you to pay nothing down at all.
However, the smaller your down payment is, the bigger your monthly payment will have to be. And if your down payment falls under 20 percent of the total purchase price, then you need to pay for private mortgage insurance, or the FHA equivalent of private mortgage insurance, which is called a mortgage insurance premium.
Making a bigger down payment can also get you a lower interest rate. Effectively, paying less in your down payment leads to paying more for mortgage insurance and higher interest rates.
So the more money you have to work with initially, the more you can save in the long term. Save money towards your down payment now so you don’t have to pay more later on.
5. Pay off debt
Of course, you probably won’t be able to pay off all your debt before getting your first mortgage. But it’s ideal to pay off as much as you can. The more debt you have now, the less a lender will decide you can afford to borrow for a mortgage.
And, if your total debt including house payments would add up to over 43 percent of your income, you probably won’t get the mortgage at all. The lower the ratio, the better. Work toward paying off debt now to set yourself up for mortgage success.
6. Look at student loans
If it’s not realistic to pay off all your student loans before getting your first mortgage and buying a home, it might be best to see if you can lower your student loan payments.
Although you’ll be paying off those loans for longer, lower monthly payments now can help put you in a position to buy a home. See if you can consolidate or refinance your student loans.
7. Pay attention to your work history
Gaps in work history don’t matter too much if you spent the time in college. And if you have a new job that’s well-paying and you just graduated college, lenders may not care that you haven’t had the job for long.
But generally speaking, you need to have a job for at least two years before you’ll be in the running for your first mortgage.
The same rule applies to part-time jobs. That doesn’t mean it’s bad to have a short-term, part-time job. A lender may not take the income into consideration, but it can still be used to help pay off your debts or save money.
Just keep in mind that jobs you’ve had for less than two years may not be counted by a mortgage lender.
8. Don’t touch your credit while the loan is pending
Once your mortgage loan is pending, make sure you don’t buy anything on credit or apply for any new credit cards. That can put the deal at risk, even if you have the credit available and are using it responsibly.
9. Consider unexpected costs
There’s more to buying a home than the down payment, mortgage payments, and mortgage insurance. Make sure you have extra money saved for the other costs.
Legal fees and document preparation will cost you something, although the amount does vary depending on where you’re located.
Other costs include home inspection, appraisal, survey, and transfer taxes. Again, these can depend heavily on location. Many lenders will also require that you have a year of property taxes and homeowner’s insurance up front, at the least.
10. Be extra prepared if you’re self-employed
In today’s economy, self-employment is a growing and viable career option. However, if you own your own business, you probably won’t qualify for a mortgage until you’ve been in business for at least two years.
One exception: This rule generally doesn’t apply to certain professionals like dentists or doctors who have left a staff position to start their own business in the field.
If you’re self-employed, there’s a good chance that you write off a lot of business expenses on your taxes, which makes your adjusted gross income significantly lower than your actual income. Keep in mind that mortgage lenders are going to consider the lower number your income.
If you’re considering starting a career as a freelancer or opening your own business, it is best to wait to do so until you’ve bought a home.
If you’re already a few years into your freelancer or entrepreneurial career, that’s great. But if not, you can make things easier for yourself by sticking with your day job until after you’ve bought your home.
Although it can be a long process, buying a home doesn’t need to be difficult. Much of the work that goes into successfully getting your first mortgage is preparation.
If you have a reliable income, proof of job history, the documentation you need, and do thorough research, getting your first mortgage will be a painless process.
Start now by considering your job, credit, loans, and savings account. Even if you’re not ready to buy a home yet, it’s never too early to start setting yourself up for success with your first mortgage.
Prepare and use the information that’s available to you. Use these ten tips, and don’t forget to talk to mortgage officers and save all the relevant paperwork.
If you are completely prepared, there is nothing scary about getting your first mortgage. The payoff of owning your own home is well worth the preparation it takes.