First-time homebuyers often experience a whirlwind of emotion. When you’re feeling excited, proud or flustered, the mortgage process may seem daunting. Don’t worry, it doesn’t have to be!
Even when this is all new to you, getting your first mortgage will be a lot easier to handle with a little preparation. Whether you have already chosen your dream home or are simply starting to look, these tips can help make the mortgage process easier.
Get Your Credit in Order
When you are starting to prepare for becoming a homeowner for the first time, the first thing you should do is take a good look at your finances. Your credit score and credit history are the major factors that will be considered for your mortgage.
If you have good credit, it will be easier for you to qualify for a loan. If your credit score needs improvement, it is best to work on this before applying for a mortgage.
Here are a few steps to help clean up your credit:
- Go through your credit report and look for mistakes, unpaid items or accounts in collection
- If necessary, file disputes to fix any mistakes in the report
- Pay down any credit cards with high balances
Try not to make other major purchases, like taking out a car loan, right before you apply for a mortgage. If you need assistance with getting your finances in order, talk to your financial institution to see if they offer free financial counseling services to help.
Gather Your Income Documents
Income is one of the factors that lenders will look into before granting you a mortgage loan. Since a mortgage is a longer-term commitment, lenders want to make sure that you will be able to handle the loan over time.
That’s why lenders will ask for a number of different income-related items when you apply for a mortgage. Make sure that you have all of your documents in order before you apply for a mortgage. You may need recent pay stubs, bank statements and W-2s from the last few years.
There are also certain factors that may come up based on what you do for a living. For example, an independent contractor or someone who is self-employed might need to show lenders a longer history of earnings.
Monitor Your Spending Habits
It’s also important that you monitor your own spending habits before you take out a mortgage for the first time. A mortgage is a major decision that will last for years, so make sure that you understand how the loan will work into your current and future expenses.
It may be a good idea to track your expenses for several months to get a feel for where your money goes. Whether you use a pen and notebook or budgeting tools, monitoring your spending habits will make it easier to begin to price houses.
Since this is your first time buying a home, keep in mind the additional costs that you may face in the future. Renters usually have a landlord to call for things like home repair or pest control, but homeowners should try to keep some emergency funds saved to handle such events.
Figure Out What You Can Spend
Once you have tracked your spending and examined your income, you should be ready to estimate how much you can afford to spend on a home and what the down payment should be.
Don’t worry, this does not have to be an exact calculation. But knowing what you can reasonably spend will help you in finding the right home and the best loan to help you get it.
Find the Right Mortgage
After you have figured out the price range that you are looking for, you are ready to figure out which mortgage option is right for you. This phase requires more research to determine which loan is best suited for your specific needs.
You will want to learn about your options, like the difference between an adjustable rate mortgage (ARM) and a fixed rate mortgage, before you choose which loan to apply for.
Take time to learn about special programs for first-time homebuyers that could help you save money. The time you spend learning about your options will all be worth it when you get the keys to your first home someday!