Purchasing a home for the first time is very exciting, but it can also be a little intimidating. However, the process is actually quite simple. Knowing what to expect and having a basic understanding of the mortgage lending process can help you to feel more confident and create a smoother transaction.
The first step to homeownership should be determining what you can afford. You can accomplish this by talking to a reputable mortgage loan officer and requesting a pre-qualification. Most lenders will provide you with this service for free. The loan officer will pull your credit report, analyze your income and assets, and let you know how much you qualify for. In order to do this analysis, they will request that you provide, at a minimum, your tax returns from the past two years as well as your most recent paystubs, and bank account statements. They will determine what your maximum purchase price is and also estimate a monthly payment for you. The monthly payment for which you qualify may be higher than what you feel comfortable paying. If so, you can ask the loan officer to crunch some numbers and determine what the maximum purchase price is for the payment you are willing to pay.
You might not need to save as much as you think prior to purchasing. Many people believe that the minimum down payment for a mortgage is 20%; however, this isn’t necessarily true. For qualified borrowers, there are programs available for as little as 5% down and even those that allow zero down, but not all lenders provide these options. Be sure to inquire with the lender if they have these programs available during your initial consultation.
A good credit history and credit score are important factors in qualifying for a mortgage, and can help you to receive the best interest rate options. If you don’t currently have credit, you will want to start establishing it right away. Maintaining three credit accounts – credit cards, car loans, student loans, and personal loans, for example – and paying them on time will generate good credit. If you are not sure if you have credit established, or do but want to see what kind of shape it’s in, you can go to annualcreditreport.com to access a free credit report prior to contacting a lender. This is the only website that is directed by federal law to provide consumers with their credit report.
If you go through the pre-qualification process and find that you don’t qualify at the moment, have no fear. Your loan officer can advise you on what you need to do to qualify, and can help you set up a plan to meet your homeownership goals. For instance, you may not qualify for a zero down loan, but they can tell you what your minimum down payment will be so you can save money. Another example could be that your current monthly debt is a bit too high, in which case your loan officer can tell you what you need to pay off to qualify.
Once you’ve been pre-qualified, you are ready to start shopping. Your loan officer will provide you with a pre-qualification letter that you can take to your realtor. Having the right realtor on your side can make the transaction easier. Make sure you pick someone with your best interest in mind that is knowledgeable about homes in your price range and the area where you would like to buy. Bear in mind that the buyer doesn’t pay the realtor – the seller does.
Good luck and Happy house Hunting! Once you find your future home your mortgage loan officer and real estate agent will guide you through to the closing table and help you get the keys to your new house.
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