Before getting your first mortgage, there are some things that would help to make sure the process runs smoothly. Taking steps beforehand can ensure that when you are ready for your first mortgage, your finances will be in order also.
- Meet with a mortgage officer before looking at homes: Meeting with a lender prior to looking at homes will help you to determine if there are credit issues that you need to fix before obtaining a mortgage and will also let you know how much house you can afford before beginning the search process.
- Pay off as much debt as you can: Paying off debt will help to keep your debt-to-income ratio down which lenders look at to determine how much you can afford. Lenders will look at your income and all of your debt including car payments, credit cards, student loans, etc. If your total debt, including your new house payment, exceeds 43% of your income, you’re unlikely to get a loan; some lenders may require a lower ratio.
- Develop good credit habits prior to buying: Paying your bills on time is very important; missed or late payments can lower your credit score, making it very difficult to buy or more expensive to borrow.
- Think about consolidating or refinancing student loans: If you are unable to pay off student loans before buying a home, consider refinancing them in order to lower your payments. You need to decide if it’s worth stretching out the life of the loan in order to buy a home sooner.
- Show a solid work history: If you have recently finished graduate school and have just found a job in your field, some lenders may not care that you don’t have two years of work history under your belt yet. If you finished school and recently started working at Starbucks, lenders may want to see you hold down that job for two years before approving you for a loan.
- Be prepared to document everything: You will need to supply tax returns, bank statements, brokerage statements, as well as documents to verify the source of any money that you plan to use. The lender will verify both your employment and income twice; once at the beginning of the process and again just prior to closing.
- Don’t apply for new credit or buy anything on credit while your loan is pending
- Speak with several lenders or mortgage brokers to find the best deal for you
- Shop for a closing agent: Closing costs such as legal fees, title insurance, and document preparation can vary considerably. Ask your Realtor or mortgage broker for recommendations.
- Ensure you have enough cash to cover all expenses: In addition to closing costs, you will need to pay for an appraisal of the home, inspection of the home, a survey, and city, county, or state transfer taxes. Many lenders also require a year’s worth of homeowner’s insurance and property taxes up front.
- The house may need to qualify: If you are using an FHA mortgage, the house is required to meet certain standards
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