With interest rates currently at a three-year low, it is clear that home values are on the rise. This makes it a great time to purchase a home — especially for first-time buyers. However, buying a home is no cakewalk; it must be handled with great care, and you must be prepared before applying. Here are a few important tips to get you started in the right direction.
Pull your credit report
First, check your credit report. Then, search for a mortgage lender who lends to people with your score. Before filling out the papers for a home mortgage loan, you may want to take a peek into your credit file. Having adverse credit can not only limit the amount the lender is willing to let you borrow, but it can also cause you to pay a much higher interest rate in comparison to someone with average to excellent credit. If you have serious debts on your credit file (such as outstanding loans, bankruptcy, or a high amount of debt), this can stop you from even obtaining a home mortgage loan.
Note: You can check your credit score and read your credit report for free within minutes using MoneyTips' Credit Manager.
Check your finances before you apply
You'll need to have this information handy when applying for a mortgage. At the same time, you'll need to know how much you can afford to borrow and pay back each month. Don't assume that the lender will only give you what you can afford to pay back. Depending on your credit score and a few other key pieces of information, they may grant you more than you can comfortably afford to pay back monthly. Thus, it's important to make sure you know what you can pay back, and don't take on a cent more.
Note: When calculating your finances, factor in your current and projected income. Also, be sure to calculate any income you get from sources outside of working, such as royalties or alimony.
Looking for a mortgage
When looking for a mortgage, the objective isn't to simply compare companies based on the amount they will give you.
There are several factors you should consider, including:
- Repayment terms
- Fixed-rate terms
- Loan costs
- Broker fees
- Prepayment penalties
- Application and credit report fees
- Required deposit amount
You should also determine whether you want to go with a broker or a direct lender. A broker is a middle man who negotiates the best deal for you utilizing the lenders that he has to choose from. A direct lender has the funds to lend you and is the final decision maker in your loan.
Applying for the mortgage loan
Before applying, you should know what information will be needed for you to complete the application.
Be sure to have the following:
- Employment verification
- Pay stubs (or bank statements showing electronic payments)
- Bank statements (for at least the last six months)
- Proof of additional income
- Proof of assets
- Information about liabilities (you may be asked on the application about liabilities such as loans, car payments, credit card debt, and other expenses)
After completing the application, they will run a credit check and determine your eligibility. At this time, you may be asked for additional information such as rental agreements, investment earnings reports, tax returns, or divorce decrees.
If you are approved, an appraiser will be hired to check the value of the home to make sure the loan amount is accurate.