First Time Home Buyer Tips: Applying for a Mortgage
Buying a home is a wonderful but stressful experience, especially if you have never done it before. One of the biggest stressors is dealing with the bank. Here are some good first time home buyer tips to consider when applying for your first mortgage.
Determine How Much Home You Can Afford
One of the most important first time home buyer tips is knowing what’s actually within your price range before you start looking for your dream home. Try using a home affordability calculator to figure out how much you can afford to spend safely.
A tried-and-true tip on home mortgage affordability is the 36% rule. Most financial advisers agree that people shouldn’t spend more than 36% of their gross income on total debt. This includes:
- Mortgages
- Credit cards
- Student loans
- Home insurance
- Medical bills
Your annual income could be more than enough to cover a mortgage, or it could fall short, depending on where you live. Knowing what you can afford will help you take financially sound next steps. You don’t want to jump into a 30-year home loan that’s too expensive for your budget. It doesn’t matter if you can find a lender willing to write the mortgage.
Check Your Credit and Pause Any New Activity
Another of the important first time home buyer tips is to understand your credit. Your credit will be one of the key factors in whether you’re approved when applying for a mortgage loan. It plays a part in determining your interest rate and possibly the loan terms.
It is best to check your credit before you begin the home buying process. Fight any errors that could be drag down your credit score. Look for any opportunities that can improve your credit, such as making a dent in any outstanding debts.
Avoid opening new credit accounts, like a credit card or auto loan, until your home loan closes. This will keep your score from dipping after you have applied for a mortgage
Compare Mortgage Rates
Many homebuyers go to only one lender for a rate quote. This often, however, leaves money on the table. Compare mortgage rates from at least three lenders. This is one of the first time home buyer tips that will save you money. According to the Consumer Financial Protection Bureau, it can save you more than $3,500 during the first five years of your loan. You should get at least three quotes and compare the rates and fees.
Ask whether any of the lenders would allow you to buy discount points as you’re comparing quotes. This means you’d prepay interest up front to get a lower interest rate on your loan. This is best for those who have money on-hand and plan to spend at least 5 years in their home.
Get a Pre-approval Letter
You can get pre-qualified for a mortgage. This will give you an estimate of how much a lender might lend to you based on your income and debts. It’s smart to get preapproval as you get closer to buying a home. A lender will thoroughly examine your finances and confirm, in writing, how much it’s willing to lend you, and under what terms. Having a pre-approval letter in hand can make you look more serious to a seller. It can give you an upper hand over buyers who haven’t taken this step.
If you’d like to get even more first time home buyer tips, give us a call. We’d love to help you get into your dream home.