For most of us, a home is one of the largest purchases — and investments — we’ll ever make in our lifetime. Although the process is often an exciting experience, there is still much to know about the ins and outs of homebuying, especially when it comes to securing a mortgage. For a first-time buyer, the process can be overwhelming. Fortunately, taking the time to educate yourself is one of the best ways to alleviate the anxiety of applying for a mortgage.
Before searching for that dream home, it’s best to assess a few key factors and ask yourself a few important questions. Firstly, what does your financial health look like? Do you have the income required to not only buy a house but maintain the additional expenses and repairs that come with homeownership? Thoroughly audit your financial situation and come up with an honest answer before you proceed.
Another factor to consider is your amount of savings. Do you have an emergency fund set aside? What about other reserves such as an IRA or certificate of deposit? You’ll need to consider this not just for emergency preparedness but also to determine how you’ll provide the down payment for a new home.
How Much You Can Afford
You also need to determine the amount of a mortgage you can both qualify for and afford. These are two different factors, and it’s a consideration that shouldn’t be taken lightly. The fact is that you might qualify for a mortgage amount that’s more than what you can actually afford after paying for food, clothing, utilities, and other monthly expenses. A mortgage payment may or may not include property taxes, so keep that in mind as well as you’re preparing your overall budget.
If you’re working with a realtor, he or she will likely be able to refer you to a good mortgage professional to assist you with the financing piece of the homebuying puzzle. If you’re not represented by a realtor, friends or relatives may also be able to offer referrals for a mortgage specialist who will help you review your financing options. Your local bank or credit union can also offer information on their mortgage products, but don’t feel the need to remain loyal to one institution if you’ve done your regular banking in one place for some time. It’s perfectly acceptable to shop around for a mortgage, even if you only qualify for one type of loan. It’s also a good idea to obtain a pre-approval before you shop for a home and begin making offers on properties. In the pre-approval process, a lender will check your credit, verify your employment, and determine your DTI (debt to income) ratio to compare your income with the amount of your existing debts in order to verify your ability to pay a mortgage.
First Homebuyers Loan Options
In most states, first-time homebuyers typically have numerous resources at their disposal to help them purchase a home. FHA, or Federal Housing Administration, loans, are government-backed mortgages that are a great way for a first-time buyer to get into a home without a large down payment and take advantage of less stringent qualification requirements. Although conventional loans require larger down payments and higher credit scores, many state-sponsored programs are available for a new buyer to help cover closing costs and even part or all of the down payment.
In your first-time search for a mortgage, remember that knowledge is power. Keeping yourself educated about the process will reduce uncertainty and increase your confidence in your decisions, from start to finish, until the day you walk through the door of your new home.