Getting your First Mortgage
Owning a home is a goal that many individuals and families work towards. A mortgage is an important financial decision and will impact your credit positively when you make your monthly payments each month. A mortgage is also a tool that can be used when applying for additional credit and other financial products.
When you are ready to get your first mortgage, there are a few steps in the process. These steps are important and should be carefully weighed against your financial situation.
Know the Current Market
Before thinking about obtaining a mortgage, you should understand the current housing market. Check for the current mortgage rates as nothing is stable in the industry. If the economy is good, it is typically a seller’s market where prices are a bit higher, demand is solid and buyers will get good deals. If the economy is poor, it is a buyer’s market. Buyers will be able to get homes for much cheaper than usual and with a good interest rate, but buyers may also have a harder time obtaining a mortgage to get the home.
Understand Your Finances
Your financial situation is the backbone of the mortgage process. If you do not have a steady income, some savings and a good credit score (at least 675-700 or higher), you will find it very difficult to find a bank that will be willing to take a chance on providing you a mortgage. The best way to know if you are ready to own a home is to look over your finances.
If you do not have a formal budget, now is the time to write it down. Know what your month income is and how it is going back out to rent, utilities and other expenses. Know how much you have saved up for emergencies. You should also check your credit report for any negative information, such as a late or missed payment since this can negatively affect your chances for getting a home loan.
Build a Down Payment
Banks are rarely willing to provide a first-time homeowner the full amount of the mortgage. A down payment will be necessary to get a bank to loan you the money. If you already have a price in mind for what you want to pay for a house, you can determine an estimated down payment amount. If you have a steady job, banks will expect to see a 20 percent down payment. If you own your own business or work as an independent contractor, you may be expected to pay up to 50 percent on a down payment in some cases. Independent contractors may also need to submit prior tax returns for proof of income.
Apply for Pre-Approval
There is nothing worse than finding a house you love and applying for a mortgage, only to be turned down because of your credit and financial health. Pre-approval is not only important to the buyer to make sure they have financing in place, but it is also important to the seller. The seller will be more willing to work with you when they know that you already have the financing set up. This means they will not have to wait for you to hear back from the bank.
Applying for pre-approval is an important step. Each bank may have a slightly different set of procedures, but all banks will want to know about your current income, your monthly budget and your credit score. This will provide them with a picture of your overall credit health. If it looks good, the bank will pre-approve you for a mortgage up to a specific amount.
Consider Additional Costs
When obtaining a mortgage, you will likely incur more costs than just the price of the home. There are a number of closing costs that are often negotiated between the buyer and seller. These fees can include an inspection, appraisal, title insurance and more. These fees will need to be paid in addition to your down payment and first mortgage payment.
Owning a home is an important step in your life. If you are prepared when starting the process, you will be able to understand what you can get with your current financial situation and how to obtain a mortgage to buy the home without a huge hassle.