According to most reports, the percentage of first time home buyers is significantly lower than it was prior to the housing market collapse. It is understandable that more people are choosing to sit on the sideline. With new lending regulations and mixed signals about home values, it can all be a bit confusing and overwhelming. But there is no reason why people should put off purchasing the home of their dreams. With some advanced planning and the right mortgage specialist on your side, you can have the home you want and a stable financial future. The following 10 tips will help ensure you get the best home loan available for you.
Know your credit score
It is crucial that you begin by knowing your credit score and taking any necessary steps to correct errors in the reports. Writing letters and changing the report can take months. A low credit score combined with little money for a down payment significantly reduces your options for obtaining the best home loan.
Save for upfront cost
It is one of the biggest mistakes many first-time buyers make. They think that their only out of pocket cost is going to be the down payment. Plan for closing cost that include lender origination fees, title recording cost, taxes, and prepaid cost for insurance and any homeowner’s association. You want to have some money in the bank to pay for any unexpected cost and be financially comfortable from the start.
Lenders will require a lot of information from you and it all needs to be documented and verified. The process will be much less stressful if you keep your financial documents organized and do not have to scramble to find something they ask for well into the loan process. You will need statements from bank accounts, pay stubs, W-2s and tax returns, and statements for any current loans.
Pay off debt
Lenders use income to debt ratios to determine whether borrowers are able to repay their mortgage and should be able to obtain a home loan. If you are carrying large debt like car loans or student loans, this can reduce the amount of the home loan you can get. If possible, pay off these loans before you begin house shopping and definitely do not take out any new loans.
Maintain work history
Your work history and perceived income stability are a significant consideration in whether or not you will qualify for a home mortgage. The home loan process is going to be more difficult for anyone who is self-employed. New rules that went into effect in 2014 increase the number of hurdles self-employed borrowers must overcome. For most people, two years of stable work history is needed to obtain the best interest rate and loan
Maintain your current credit profile
As you get closer to purchasing your home, it becomes increasingly important to not take any action that will alter your credit profile. This is very important during the time after you obtained your pre-approval and when you actually close on the mortgage. Slight changes in your credit score can raise your interest rate or even result in you no longer qualifying for the loan. Do not open any new credit card accounts or close any existing accounts.
Know about your financing options
A recent survey by NeighborWorks found that 70 percent of adults are not aware of the home buying assistance programs that are available to middle-income families. There are many options available to first-time buyers that are not an option for people who have purchased a home previously. In addition to the federal programs, your state may also offer home buying assistance and incentives to first-time buyers. Just slight differences in the interest rate will have a significant impact on the total price you end up paying for your home.
Different than a cursory pre-qualification, a thorough pre-approval involves having the loan officer review your credit report and send information about your debt, income, and other financial documents to the automated underwriting system. When you have a pre-approval, home sellers know you are a serious, ready, willing, and able buyer.
Shop and compare lenders
You can get a home purchase loan from commercial banks, credit unions, mortgage companies, or thrift institutions. They offer different loan programs and charge different fees. The best housing lender will work to earn your business by taking the worries out of getting a home loan and helping you understand each step of the process.
Know requirements for the house
Different types of loans like FHA, USDA, and VA have certain property requirements that must be met for you to use one of these loans as your home mortgage. Some require specific types of inspections and appraisals that may lengthen the time it takes to close a transaction and make an offer with one of these loans less appealing to some sellers.