Your first mortgage is incredibly exciting. For many people, buying a home is the pinnacle of adulthood, the ultimate goal of years of education, and proof that life is moving in the right direction. However, before you dive right in and sign your name on the dotted line, check out the tips below for first-time homebuyers.
Know What You Can Afford Ahead of Time
Going into a bank expecting to be able to borrow $750,000 and finding out you only qualify to borrow $250,000 can be disappointing to say the least, so before you even attempt to apply for a mortgage, figure out what you can afford to borrow. Remember that aside from your actual mortgage, you’ll have property taxes, repairs, homeowner’s insurance, and more. Create a budget and try to figure out how much money you can afford to spend each month on a mortgage alone, then use that information to determine how much you will be able to borrow comfortably.
Start Tracking Mortgage Rates Early in the Process
Even if you know for a fact that you won’t be getting a mortgage until next year, it serves you well to start tracking mortgage rates right away. Even half a percentage point could save you thousands of dollars in this case. Learn all you can about paying points in exchange for a lower interest rate, and when the time for obtaining that mortgage gets even closer, ask your lender about a rate lock that ensures you will still be able to get the rate you were offered even if it takes a little longer to get you qualified than predicted.
Save a Down Payment of at Least 20%
Though you probably see ads all over social media, the news, and the internet in general promising you a mortgage with a low or $0 down payment, it is in your best interest to save up 20% (or even more) if you can do so. The more you can save for a down payment, the better the chance that the lender you choose will take you seriously and see you as a responsible borrower. In fact, a 20% down payment could save you 2% to 2.5% on your mortgage interest rate – and that’s a lot of money. The more you save above 20%, the better. What’s more, many lenders will require you to carry private mortgage insurance (PMI) if you put down less than 20%, too.
Organize Your Documents
Last, but most certainly not least, in order to get a mortgage, you will need to provide stacks of documents to your lender. This includes (but is not limited to) your tax returns, bank account statements, paycheck stubs, business ledgers, and more – often for at least a year back. Your lender will use these documents to determine y our eligibility for a mortgage and, if you are eligible, the amount you can get. The earlier you start keeping and organizing these documents, the better. It’ll save you a great deal of time in the future.
If you are planning to buy your very first home, there’s probably a lot going through your mind. However, if you take the time to follow these steps – and perhaps even get a preapproval amount through the lender of your choice – the processes involved in finding a home and making an offer will be much, much simpler for everyone involved.
