When it comes to qualifying for a mortgage for the first time, the process can seem a little intimidating. However, if you are prepared and know what to expect, the process can go much more smoothly with little delays in processing and paperwork.
Mortgage lending standards are different now than they were five or six years ago. Securing a mortgage loan can take some time – even months – so start the process early, so when you find the home you want, you will already be on your way to securing a loan.
Here are the top 5 mortgage tips for first-time homebuyers:
1. Get your finances in order. Make sure you know what you can afford. Get out of debt, and save enough for both your down payment and any closing costs or fees associated with the closing. Also, pull your credit report so there are no surprises when the lender reviews it. Even small issues with your finances can keep you from getting the best mortgage rates or even securing a loan.
2. Gather all necessary documentation. There is a lot of documentation required when applying for a mortgage loan. You will need the at least the following: Your last two W2 forms, the last two months of your bank statements, the last two years of your income tax returns, and the last two months of your check stubs. There may be more that your lender needs, but if you have the above-mentioned documents organized and ready during your first meeting with your lender, it can avoid a big delay in the process trying to track these documents down.
3. Get preapproved. Work with a lender you trust to determine how much you can afford and what your monthly payments would be. A preapproval is different from prequalification. A preapproval letter shows that your lender evaluated your complete financial situation and credit history and determined an acceptable loan amount for you. The preapproval letter puts you in a stronger position to make an offer on a home. It can be a good negotiating tool, if necessary.
4. Leave your credit alone. While going through the process of searching for homes, do not open any new credit cards or installment loans. Do not purchase a new car or anything else you may have to finance. Make sure all your bills are paid on time, especially during this period. You lender will likely pull another credit report before closing, and if there is any negative information that was not there before, it can adversely affect your ability to close on your new home.
5. Do not buy more home than you know you can afford. Only you know your financial limits. Just because you qualify for a $400,000 home may not mean you should purchase a $400,000 home. Spending too much on a home can leave little money left for bills, maintenance, emergencies, savings, and even fun things like vacations. Typically, most lenders suggest that you spend no more than 28% of your monthly income on a mortgage.