5 Things First-Time Homebuyers Must Know Before Taking out a Mortgage

 

5 Things First-Time Homebuyers Must Know Before Taking out a Mortgage


By: Greg McKinney Mineola TX

 If you’re thinking about buying your first home, there are some things you should know to increase your chance of mortgage approval. Even in today’s competitive real estate market, first-time homebuyers have many opportunities to get a home, but it all starts with knowing how to get approved for a mortgage.

 You Must Check your Credit

 Your credit is the first thing lenders look at and use to decide if you’ll qualify for financing. Everyone gets free access to their credit reports – use it.

 Check your credit report for any of the following:

  • Late payments
  • Use of more than 30% of your credit line
  • Collections
  • Inaccurate information

Dispute any incorrect information, bring late payments current, and pay any large outstanding credit lines down to improve your credit score.

 You Need Money for a Down Payment AND Closing Costs

You might only need 3 – 3.5% down on the home, but don’t forget about closing costs. They can be as much as 2% - 5% of the loan amount.

 You must prove any funds you use to cover the down payment and closing costs belong to you and they aren’t borrowed. The earlier you save, the easier it is to afford a mortgage.

 Acceptable funds can come from your checking or savings account, investment accounts, and even your 401K or IRA if allowed by your account administrator.

 Get Pre-Approved for Looking at Homes

 A loan pre-approval tells you how much you can afford and at what terms. It also tells sellers you are a serious and capable buyer, which in today’s real estate industry is important. Sellers often won’t take offers from buyers without a pre-approval.

 Think of the pre-approval as your first step to buying a home. You’ll knock out the requirements to qualify you personally for the loan. All that’s left is to qualify the property and take care of any loose ends the lender lists as conditions on your pre-approval letter.

 Know How Much you can Afford

 A pre-approval will tell you the maximum amount of loan a lender will give you. That doesn’t mean you must spend the full amount.

 Look at the payment and decide if it’s something you can afford. Not everyone borrows the full amount they qualify for because it doesn’t fit within the budget they set for themselves. Don’t forget you’ll need plenty of reserves as a homeowner since all maintenance and repairs are your responsibility.

 Compare your Loan Options

 You might qualify for more than one type of loan. Take advantage of the opportunity to compare them side-by-side. For each loan you apply for, you’ll receive a Loan Estimate. Use this document to compare your options from each lender. Look not only at the monthly payment and closing costs, but at the big picture.

 How much does the loan cost over its entire term? That’s how you choose the best loan.

 Final Thoughts

 Buying your first home is exciting but proceed with caution. Check your credit, save enough money to cover your costs, and know your loan options. With the right steps, you can enter homeownership with an attractive loan and still have money in your pocket.

Greg McKinney Mineola Texas

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