Are you thinking of buying a house and don't know where to start?
We will provide you with a series of blogs to give you a complete step-by-step guide to buying your first house.
Today, we talk about preparation.
If you're ready to buy a house, you must find the right mortgage. This step is even more important than finding the right house. Your mortgage is how you finance the property, and it's a loan you could have for the next 15 to 30 years, so you want a loan with the right terms.
Fortunately, first-time homebuyers have many programs available to them to finance their home. Here's what you must know.
1. How Much Money Should you Save as a First-Time Homebuyer?
Most first-time homebuyers worry about how much money they need, assuming a 20% down payment is required. Fortunately, it's not.
First-time homebuyers can put down as little as 3% on their homes. It depends on which loan program you qualify for:
Conventional loans require a 3% down payment but you need good credit and a debt ratio below 43%
FHA loans require a 3.5% down payment but require only a 580-credit score and as high as a 50% debt ratio.
VA and USDA loans have no down payment programs.
Every loan has closing costs though. They can total 3% - 5% of the loan amount. Add this amount to your down payment and you have the amount you should save for your first home.
2. Preparing Your Credit
You don't need perfect credit to buy a home, but a higher credit score improves your chances of approval and lowers your interest rate. Pull your free credit report and make sure you don't have any of the following:
Late payments (payments over 30 days late)
Overextended credit (credit card balances over 30% of your credit line)
Collections or bankruptcies
If you have anything negative on your credit report, take the necessary steps to clear it up first. Bring any late payments current, pay high credit card balances down, dispute any discrepancies or fraudulent activity, and clear up any issues.
3. Stabilize your Employment
It's best if you have 2-year stable employment and income. If you've changed jobs recently but it's within the same industry, you may still qualify for a loan. If you've changed industries, you must prove you have the training or education to succeed.
4. Get preapproved
Getting a preapproval letter is a key step before looking for houses.
Make sure you get the real preapproval (not pre-qualification) by letting loan officers check your credit score and review your financial documents.
There are many benefits for homebuyers to get preapproved.
Learn the loan amount you are approved. It helps you determine how much house you can afford.
Provide confidence in your ability to obtain a mortgage. Preapproval doesn't guarantee you will be 100% sure to get a mortgage. But the chance is high, assuming there is no finances change between preapproval and closing on the home.
Identify any issue and fix it early.
Many first-time homebuyers don't know they can shop for mortgage rates before getting preapproved. An easy way is to use MRateQuote.com to find the lenders who have good interest rates for your type of mortgage.
5. Freeze your Financial Life
Once you get preapproved for a mortgage, freeze your financial life. Don't use your credit cards, make large deposits or withdrawals in your bank account, change jobs, or make any other drastic changes.
Buying your first home is exciting and overwhelming at the same time. MRateQuote.com works with lenders from prestigious banks to local brokers. If you're ready to take the plunge, our loan officers are here to help. They'll go over your options with you, helping you find the best loan for your situation.