You’ve saved and scrimped for your dream home but you may be unsure of when you are ready to start shopping for a mortgage. It takes research and effort to feel comfortable that you are making an intelligent decision. Taking on a mortgage loan is a big responsibility. Also, if you are a first time homeowner, the terminology may be confusing and more than a little intimidating. There are a number of factors to consider before jumping into the search for a mortgage lender. They will help you decide if you are truly ready to take the plunge into the housing market. While the lending rates are creeping higher, they are still at record low levels. This fact, at first blush, may make you feel the urge to jump into the market before they venture any higher. Purchasing a home will mostly likely the largest investment that you ever make, however. So it is paramount that you are fully prepared and understand the ins and outs of what is involved so that you can make the best decision for you and your family. Most likely, the house that you purchase will be where you will be living for quite some time.
Working on Your Credit Report
Mortgage lenders will be very interested in your credit ranking so it’s important to spend additional time addressing any issues in your credit report. Addressing inaccuracies beforehand will save you a lot of time when you do decide to look for a mortgage lender. Also, make an effort to pay down any large debts that you may have. This means paying more than the minimum balances on any credit cards or debts. Another consideration lenders look at is how timely you are on paying your bills. Paying bills on time creates a positive pattern that will be attractive to lenders. Most lenders are looking for clients with a debt to income ratio of 36% or less.
Building Your Down Payment
Ideally, you want to have 20% of the purchase price saved for the down payment. This, however, is not required and can sometimes be negotiated. One thing to consider though is that the larger the down payment that you make will give you greater home equity when you initially purchase a house. Down the road, taking to the time to save for a larger down payment will save you money. Generally, most lenders expect home buyers to put at least 3% down on a home purchase. Also, there are a variety of local and federal programs to assist first time homebuyers with the down payment. Again, research the programs available in your area to decide the best option for you and your family. You need to make sure that you are not stretching yourself too thin financially but taking on a debt that is beyond your means.
Use Mortgage Preapproval to Your Advantage
The next step will be to get pre-approved for a mortgage. This will tell you how much you can realistically expect to borrow for a new home. This also will indicate how lenders view your credit worthiness. By taking this step, you will be able to decide which homes might be an option for you. On average, most are able to secure loans that are approximately three times their annual income.
Find the Right Lender
Lenders all offer different products so it is important to thoroughly research each one. One company may not offer the services that particularly fit your situation. Also, lender fees are not uniform so it is important to look closely at what a company offers. Comparing mortgage estimates from several companies will help you make the best decision for your situation.
Understanding Loan Types
There are several different types of loans that are available including fixed rate, variable rate and adjustable rate or ARM. First time homebuyers need to thoroughly research these options before considering which one will be the best for them. Someone who is planning on staying in the home for a long period of time may find that a 30-year loan works best for their budget. While someone who is planning on staying in a home for a shorter period of time may find that a variable rate and adjustable rate loan makes more sense. Taking time to consider your needs, situation and future plans will help you make the best decision.
Building Your Budget
When shopping for a mortgage loan, it is also important to understand your lifestyle and regular financial demands. When you secure a loan, that will not be the only monthly budgetary consideration you will have as a new home owner. Regular maintenance and upkeep will also be part of the budget. Also, homeowner’s association fees need to be built in. After that, there is property taxes. Most mortgage lenders will also require that you have full homeowner’s insurance. This is often an overlooked expense when new home buyers get excited about the search for a new home. You will also want to look into the areas where you would like to live. Potentially, the area that you most want to live in will be further away from work than where you currently live. This additional commute time will mean additional monies will be needed for gas and automobile maintenance. Many people also forget to include the closing costs in their budget. Some closing costs can be negotiated during the home buying process but not all of them. The fixed costs and any negotiated costs will need to be paid to complete the sale transaction. As you went through the mortgage pre-approval process, you will have a better idea of what it will take to close a deal. All of these factors need to be included in your monthly budget so that there are no surprises.
The home buying process can be a daunting more. First time homebuyers may be confused or even a little jarred by the unfamiliar terminology and the process. Never fear! It can be stressful but it is doable. Doing a lot of solid research into every aspect of the process can help you to understand what to expect at every step on the journey. This, in turn, will greatly reduce the stress that you feel and help you to plan ahead. Along the way, you will meet many knowledgeable professionals and many online resources to help expand your understanding of the housing market and the home buying process. All of these resources are available to you to help you make the best decisions for you and your family.