Many first time home buyers don't think they can qualify for a home loan, but the truth is, there are many types of mortgages available, even for first time home buyers. Even if you are facing some of these challenges, a loan consultant can help you determine if now is the time to buy your first home and which first-time home buying loan program is right for you.
Preparing for a Home Loan
YOUR FINANCIAL SITUATION
One of the best things you can do, to help yourself prepare for what's to come in the home buying process, is to check your credit rating with the 3 credit bureaus: Equifax, Experian, and TransUnion. Clear up any errors that may appear on those reports as soon as possible. You should also consider consolidating any debt you may have. The goal is to have your total debt less than 38% of your total income. Your credit score plays an important factor in determining how much you are qualified to borrow, so make sure you do your homework and find out where you stand.
Saving money is also a top priority for new home buyers. Saving as much as possible prior to beginning the home buying process will ensure a substantial down payment and the potential to lower your rate and monthly payment.
LESS THAN PERFECT CREDIT?
Good credit is ideal, but we all know that unfortunately in this market many of us don't fall into that category. The good news is that there are many types of mortgages for those with not-so-perfect credit, and chances are you may still be able to qualify for home financing.
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Before you even look to buy a house, your first step should be to get preapproved. The preapproval will give you the confidence to look for a new home, know how much you qualify to borrow, and better understand your different home financing options. Having a preapproval prior to putting an offer a home will also give you an advantage over competing offers. A Loan Officer will work with you to gather the needed information to get preapproved for a home loan. Be ready to provide documentation for all of your finances, including: proof of income (paystubs), copies of W-2s, and copies of asset information.
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CHOOSE THE RIGHT LOAN OFFICER
Finding and choosing a qualified and competent Loan Officer is important, especially for a first time mortgage. This should be included in the first step of getting preapproved. The Loan Officer will help you determine what home financing loan option is the most beneficial for your home needs and lifestyle. Whomever you choose to work with will come to know a lot about you, and will be involved in one of the biggest decisions you will ever make. It's important that they are trustworthy, make themselves available to answer your questions, and are knowledgeable on all the different loan products available.
A Loan Officer will help you prepare so you feel confident about your decision to buy a new home and relieve any fears about the process. You will be educated on the different types of mortgages available, learn how to get a mortgage, and be guided through the preapproval process.
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Shopping for a Home
WORKING WITH YOUR REAL ESTATE AGENT
A Real Estate Agent is someone that will be with you from start to finish. They'll be responsible for finding you the perfect home, negotiating to get you the best deal, and handling all the tedious paperwork that's involved with buying a home. They are a wealth of knowledge and insight, not only in real estate, but also in the communities where they work. They know all the great spots in town and what neighborhood best suits your needs.
Finding a good Real Estate Agent is not something that should be taken lightly. Ask friends and family for recommendations, and always interview candidates before choosing the right one for you.
HOW TO CHOOSE WHAT IS BEST FOR YOU
Your Real Estate Agent can help you find the best house in the best neighborhood, but first you must understand what you and your family need in a new home. It's time to make a checklist of things you're looking for in a house: How many bedrooms? How long of a commute can you tolerate? Do you want it in the suburbs or near downtown? The more details you provide, the easier it will be for your agent to find something that accommodates your lifestyle.
COSTS ASSOCIATED WITH YOUR PURCHASE
Buying a new home requires a few different types of up-front costs. Be prepared for what you will spend on a new home by understanding why and when you'll need to have cash ready:
- Earnest Money: Money you put up front to show that you're serious about purchasing.
- Down Payment: Money that's paid toward the total of the home's price, usually 10-20%, but you can get it as low as 3% if you qualify for certain types of mortgages.
- Closing Cost: Expenses associated with a home loan, such as processing fees charged by the lender, Title Company, the local government, and anyone else involved with the home sale.
An easy way to review all these costs is to carefully review the Loan Estimate form, which lenders are required to provide to you within three business days of receiving your loan application.
The Loan Estimate form shows borrowers the full terms of their loan, their estimated interest amount, their estimated monthly payment, estimated closing costs, and other important information in a simple and understandable format. Lenders are required by law to provide this form to you to ensure you are fully aware of all the relevant loan information before agreeing to start the loan process. Make sure you read this form carefully and ask your Loan Officer if you have any questions.
Closing on your Mortgage
Almost all home loans require a down payment somewhere between 10% and 20% of the home's purchase price. This is typically the largest cost of the whole home purchase, especially for buyers looking for a first time mortgage. Providing this much cash is an effort that must be taken seriously, and you need to start saving if you're going to buy the home you want.
Gift monies can also be used to purchase a home. If you are planning a wedding, it is not uncommon to find wedding registries include cash gifts to help a couple plan for a home purchase.
FAST, ON-TIME CLOSINGS
Once you have prepared yourself for home ownership, have selected a new home, and have secured an offer, the final step is closing the deal.