Getting approved for a mortgage can be a daunting task as a young adult. You are just getting your financial life started and your finances may not be in perfect shape. Do not worry, though; it is possible to get a mortgage as a young homebuyer with the help of the five keys listed below.
1. Great Credit
A good credit record is essential to being approved for a mortgage in today's tough lending environment. Aim for a credit score of 740 or above to get the best interest rates. It is possible to be approved for a loan with a lower credit score, but you will pay thousands of dollars more in interest over the lifetime of your mortgage loan.
2. A Solid Down Payment
Having a solid down payment is another key to successfully getting approved for your first mortgage. Aim to put down at least 20% on your first home.
Keep in mind that you will have to pay closing costs as well. That means you will actually need more than 20% of the home price in cash in order to get the lowest mortgage rates.
If you cannot come up with the whole 20% up front, you may qualify for a loan other than a conventional mortgage that requires a smaller down payment. Other types of mortgages may have higher interest rates or other fees that will cost you more money over the length of the loan.
Another option is receiving a gift for a portion of the down payment. You could ask your relatives for part of your inheritance early or your family may just want to help you out. Either way, lenders will find out you used gift money for your down payment and will require you to prove that at least some of your down payment came from your own funds.
3. Stable Employment History and Income
Lenders look at your whole financial picture when they approve you for a mortgage. That includes your employment and income history. Lenders like to see a stable or growing income to ensure you can keep up with future payments. The same goes for your career.
Try not to job hop right before you apply for a mortgage. You can switch jobs, but it helps if the new and old jobs are both in the same industry.
4. Little Debt Owed to Others
The pre-approved amount for your mortgage will be determined based on your debt to income ratio. In order to be approved for the largest mortgage possible, you will need to have as little debt as possible.
While you should not base your purchasing decision on how much the bank will approve you for, it is always nice to have options available to you, should you need them. Lowering your debt to increase your potential mortgage amount gives you that opportunity for leeway.
5. Attention to Detail
The last key to success is attention to detail. This can be applied in multiple steps both prior to and throughout the mortgage process. For instance, attention to detail will help you maintain a high credit score by never missing a payment.
Attention to detail will also help when you fill out your long and detailed mortgage application. This will help you avoid wasted time going back and forth with underwriting, correcting small errors and providing backup information that may be requested based on those errors.
Obtaining your first mortgage is a big step as a young adult, but there is nothing to stress out about. Prepare yourself and your finances as best you can prior to your application, then wait for the bank's decision. Good luck!
If you want to settle outstanding debts for less than what you owe, try our debt settlement tool.