How to get your first mortgage
Getting a mortgage for the first time can be a stressful, even harrowing, experience. Before you can even talk to a lender or mortgage broker, you’ll have to get your financial house in order so you’re prepared for the responsibility of not just mortgage payments, but also home maintenance, repairs, and emergencies. When you are finally financially ready to buy, you’ll need to shop carefully for your loan and for your home, and be prepared to make an offer as soon as you find a home that meets your requirements.
You need to know what to expect from the homebuying process in order to prepare and go into it with your eyes wide open. Buying a home is a huge financial commitment, and you need to make sure you’re getting your money’s worth. Here’s what you need to do to get to closing day.
Buff Up Your Credit
You don’t need a perfect credit score to get a home loan – you can get a Federal Housing Administration (FHA)-backed loan with a credit score of 500 and a 10 percent down payment.
But a higher credit score will make you a more appealing loan prospect to lenders, so you’ll have more flexibility to shop around for the best terms. You’ll also get the best interest rates and maybe even qualify for a larger loan. Take steps to remove negative marks from your credit history, including paying off items in collections and disputing inaccuracies. Work on bringing down your debt-to-income (DTI) ratio as well – lenders like to see a DTI of no more than 43 percent, and the lower your DTI, the easier it will be for you to handle a mortgage payment.
Scrimp and Save
If you have good credit and you’re willing to buy private mortgage insurance (PMI), you can get a loan with a down payment as low as three percent. If you qualify for a Veterans Administration (VA) or U.S. Department of Agriculture (USDA) loan, you could even get a mortgage with zero down.
But a larger down payment buys you more equity in the home right off the bat. That can come in handy if you need to take out a home equity loan to pay for large emergency repairs or updates. It can also safeguard you against volatility in the real estate market, making you less likely to end up underwater on your loan if housing prices fall after you buy.
Get Your Pre-Approval Letter
You should get pre-approved by the lender of your choice before you start shopping for houses. You’ll know exactly how much you can spend, and you’ll be able to make an offer right away if you see a house you like. That’s vital in hot markets, where even fixer-uppers get into bidding wars. It also lets real estate agents and sellers know you’re serious about purchasing a home. Many real estate agents in hot markets won’t even work with you unless you’ve been preapproved for a mortgage; Charlottesville, VA is such a market, for example.
Shop for Your Dream Home
Work with your real estate agent to find a property that meets all of your needs. Consider what’s most important to you in a property, like proximity to good schools, room for a growing family, the size of the bathrooms or kitchen, off-street parking, a flat lot, a specific neighborhood, access to amenities…the list goes on. You may not be able to find everything on your list in one house, so figure out what your non-negotiables are and share them with your agent. He or she can help you find a house that has the features you want.
Get Your Inspections
Once you’ve put an offer on a house, you’ll have a contingency period during which you can have inspections done. Most lenders will require a home inspection, which should turn up any major, glaring flaws with the house. You have the option of backing out of the deal if the inspection turns up any problems that the sellers did not disclose.
You will also need to get separate inspections for mold, radon, and pests. Altogether, these can cost several hundred dollars – yet another reason to be well-prepared financially for your home purchase.
Negotiate with the Seller
You can use the results of the inspections to negotiate a better price with the seller. You can also ask the seller to fix some or all of the problems with the house before you’re willing to close on the deal. This might require some back-and-forth, and it may even lead to breaking the deal.
Close on the Deal
Once you’ve completed negotiations, gotten the seller to perform needed repairs, and received final approval of your mortgage loan, it’s time to close on your new house! Do a final walkthrough of the property with your agent to make sure the seller has left everything clean, empty, and in good condition. If anything is amiss, you can postpone closing while the seller finishes preparing the home for sale.
Buying a home for the first time is nerve-wracking, but it’s easier to cope with when you’re prepared. Make sure you’re financially ready for homeownership, and you’ll soon be making payments on your own little slice of the American dream.