If you are going to buy your first home, then most likely you will be in need of a mortgage. If it is so, then start looking into your mortgage prospects even before you start looking at houses. Buying a home costs hell alot of money, after all its a house. Big or small doesn’t matters, you need a good amount of money to buy one. And if you don’t have that much money, then you will think of mortgage for sure. So here, we will tell you how to get a mortgage.
A good credit, a healthy income and a good amount of money in your bank account, will prove to be very helpful in securing mortgage preapproval quickly. And now you can proceed straight to the process of home buying. But if you tight on credit, are self-employed, do have little cash in with you, then you should start the process quite before you start looking at houses.
You have to get a copy of your credit report to know what’s in there.
You can get the free credit report annually, it will help you identify the areas of problem, but it won’t show you the credit score that the mortgage officer will be able to see. Meeting two to three mortgage officers at the start of the whole process is very crucial. If you don’t get a mortgage preapproval, then many agents won’t even show you homes.
You will need to produce documents, and so many of them. Starting from many years of tax returns and many months old bank statements. The lenders will ask for the proof of your income, and info about all your debts. They will want to know if you have any big deposits. If your parents gave you the money for down payment, then they will be in a need to write a legal letter documenting that.
You will need money, alot of money. You will need it for the closing costs, down payment, and a little more than a year’s worth of taxes and insurance payments. Lenders will make sure that you have enough reserves with you, in case you lose your job.
Generally, 20 percent is considered as most preferable down payment rate. you can buy a house with as little as 3.5 percent down with a If you buy a house with Federal Housing Administration mortgage, then you can buy it for 3.5%.
If you paid less as the down payment, you will have to pay bigger amounts every month. You will need to pay private mortgage insurance or the mortgage insurance premium if your down payment is below 20 percent. The Private Mortgage Insurance can add about $92 a month. An FHA mortgage requires an upfront MIP payment which equals to 1.75 percent of the total purchase price.
There are chances for you to get a lower interest rate if you paid a higher down payment. The less you pay as down payment, the more expensive the mortgage insurance becomes.
Follow these steps before getting your mortgage:
- Meet with a mortgage officer – Even before you start looking at homes, meet a mortgage officer or two. This will assist you in determining if you have any such credit problems that need to be solved. It will also help you know how costly house you can afford even before you begin searching.
- Pay off as much debt as you can – Pay as much debt as you can, cause it will help in keeping your debt-to-income ratio down. Lenders will look at your income and all your debts to determine how much can you really afford. There’s very low chance for you to get a loan if your total debt, including the new house payment is more than 43 percent of your income.
- Develop good credit habits – Missing on monthly payments of student loans or paying your bills late out of habit, will lower your credit score. And it will make borrowing for a home very expensive or impossible.
- Consider consolidating or refinancing loans – If you can’t pay off your loans before buying a home, then check if you can lower the payments.
- Show a solid work history – If you have a solid work history, then the chances of getting the mortgage increase automatically. If you are doing a solid job (a full time job), then the lender will see it as a plus point while giving you the mortgage.
- Be prepared to document everything – Tax returns, bank statements, brokerage statements and documents to verify the source of any money you plan to use; you will need to show documents of all of them. Your employment and income will be verified by the lender once at the beginning and again a day before closing.
- Don’t buy anything on credit – Don’t go to buy anything until your loan is pending. Once you have started the process, don’t spend a penny that you don’t have in your hands, don’t even think of putting anything on credit cards. If you did, then you will end up jeopardizing the deal.
- Make sure you have enough cash – You will need alot of money to cover all your costs. You will have to pay for the costs charged by the lender, the closing agent, for a home inspection, an appraisal, a survey and city/county/state transfer taxes. Many lenders do ask for a year’s worth of homeowners insurance and property taxes to be paid.
Hopefully, all your doubts regarding how to get a mortgage must have been clear now. Getting a mortgage is a difficult and a very time consuming process, but if you did everything well and after enough research, then it can become very easy for you. Find the right information, do enough research and only then go for getting a mortgage. Never doubt the value of your mortgage, if you feel that the lender is calculating it too low, then negotiate on it or just find any other lender. Mortgage is the biggest property in whose return you can take a loan, so take it wisely.