First-time home buyers face a lot of challenges. But they also have a lot of resources available.
One of the best things you can do is to prepare for the mortgage process before you begin looking for a house. That means establishing a savings goal and setting up automatic transfers from your checking account to a savings account.
1. Don’t Be Pressured
If you are a first-time home mortgage borrower, it is important that you do not be pressured into taking a loan that you don’t fully understand. These loans tend to cost you tens of thousands of dollars in the long run. They are also risky for the lender because they can end up in foreclosure or go into default.
If you’re a first-time home mortgage buyer, it is also important that you won’t be pressured into taking a loan that has an interest rate that is too low. These types of loans can end up costing you tens of thousands of dollars in interest.
One of the best things that you can do to make sure that you don’t fall into this trap is to get pre-approved for a mortgage. This is a free service that lenders offer and it allows you to look at your credit, income, and savings and see what your mortgage approval would look like before you start looking at houses.
Having a pre-approval will make you more credible to sellers, real estate agents, and other potential lenders. Plus, it will give you the confidence to make offers on homes that you are interested in.
Many of the most popular mortgages for first-time home buyers are backed by the Federal Housing Administration (FHA). These loans often have a lower credit score and down payment requirements than conventional loans. They may even allow you to put down as little as 3.5% if your credit is weak. However, you should always remember that a lower down payment means a higher interest rate, so it’s best to keep this in mind when considering a mortgage.
2. Shop Around
One of the most important things you can do as a first-time home mortgage borrower is shop around. This is not only a wise financial move, but it can also save you thousands of dollars over the life of your loan.
Most lenders offer a variety of mortgage products, and you can choose the right lender for you based on your needs. You can also find lenders who specialize in a certain type of mortgage, like an FHA loan, a USDA loan, or a fixed-rate mortgage.
Getting the best rates on your new home loan is an easy task if you know how to go about it. Using tools like our Loan Estimate, you can compare interest rates and other key elements from different lenders, including fees and discount points.
A well-chosen mortgage provider can make the entire process easier and smoother for you. For example, many mortgage companies will offer a Mortgage Shopping Worksheet to help you compare loans and prepare for negotiations.
You can even use our interactive Mortgage Rate Table to get personalized mortgage rate estimates based on your credit score, down payment, and loan term. The most important thing to remember is that mortgage rates are always changing, and you should do your research before choosing a lender to ensure that you’re getting the best deal possible. Using the above tips will give you the leg up on the competition and put you in a better position to get your new home mortgage off the ground.
3. Get Pre-Approved
Getting pre-approved is a critical part of the home-buying process because it gives you an idea of how much you can borrow for a mortgage. And it shows sellers that you’re serious about buying a home, which helps increase the likelihood that they’ll take your offer seriously.
Lenders will look at your credit score and other financial information before approving you for a mortgage. They may also want to see your income and debt-to-income ratio (DTI).
In order to get preapproved, you’ll need to fill out a loan application with your lender. This typically takes 10-20 minutes to complete online or over the phone.
Then, your lender will pull your three-bureau credit report to check your scores and credit history. Once they’ve verified your credit, you’ll receive a preapproval letter that outlines how much you can borrow and your interest rate.
Once you’ve received your preapproval letter, you can begin shopping for a home. Your lender can help you set up a timeline for house-hunting and give you tips on which types of homes are best suited to your needs.
You can also shop around for lenders and find out if you’re eligible for different loans with better rates and terms. This will allow you to get the most competitive rate possible on your mortgage.
However, remember that getting multiple preapprovals for a mortgage within a short period of time can hurt your credit score. This is because lenders typically check your credit with a hard pull, which will lower your score by a few points.
4. Get a Down Payment
A down payment is an important part of the mortgage process. It helps protect lenders by allowing them to make a lower-risk investment, and it makes homeownership more affordable for first-time homebuyers.
The amount of money you will need to put down on a house depends on the type of loan you are getting and the lender’s requirements. But realistically, most first-time home buyers need 3% down or more.
If you don’t have enough saved, there are a number of other options available to help you get the down payment you need. One is to look into private mortgage insurance (PMI), which can be costly but can also save you thousands of dollars over the life of your mortgage.
Another way to reduce your down payment responsibility is to take advantage of down payment assistance programs that are available locally or from the federal government. These are essentially grants that help you pay your down payment and closing costs, so they can be a huge help to you as a first-time buyer.
These can include state-run programs, as well as other local and federal tax credits, educational opportunities, and charitable programs. It’s a good idea to research what is available in your area before you start looking for a home so you can be sure you are taking advantage of all the options that are available to you as a first-time homebuyer.
You may even be able to get the down payment you need from your employer or a nonprofit organization. These organizations often have different requirements than banks and other lenders, so it’s important to shop around for the best option for you.
5. Get a Mortgage with a Low LTV
If you’re planning to purchase your first home or refinance one you already own, it’s important to get your loan-to-value ratio (LTV) right. This number plays a big role in your mortgage rate and whether lenders will approve you for the loan.
A high LTV is one of the most common reasons borrowers default on their mortgages, and it can also put you at risk for an underwater mortgage. An underwater mortgage means you owe more than your home is worth, and it can cost you thousands of dollars in additional interest over the life of the loan.
The best way to avoid an underwater mortgage is to do your research and pay your home loan on time. This will help you see if your home’s value has dropped, and you can fix this problem before it gets worse.
You can also lower your LTV by making a larger down payment on your home. That’s because a higher down payment indicates that you’re a more serious borrower, and lenders take that into consideration when deciding to approve your mortgage or refinance.
In addition, a large down payment makes it more likely that your lender will offer you a lower interest rate than you might otherwise qualify for. And a large down payment can increase the amount of equity you have in your home, which can further decrease your loan-to-value ratio.
For first-time home buyers, a low loan-to-value ratio is an excellent goal, as it will minimize your mortgage costs and keep you from getting into an underwater mortgage. There are a few ways you can achieve this goal, including making extra mortgage payments and investing in a down payment assistance program.