Buying a home and taking out your first mortgage can be an overwhelming process. It's a big leap, but it doesn't have to be into the unknown.
In fact, there are many things you can do before, during, and after the process to make life easier. Some people end up with mortgages that they're unhappy with, or can't afford later on.
Don't be like those people. Check out these ten mortgage tips and use them to help you navigate the home buying process.
1. Check Your Credit Score
Before you start the home buying process, you absolutely need to check your credit score. It's not enough to be pretty sure you have good credit. Errors can pop up at any time.
Check for any mistakes and do what you can to improve your score before you begin the process. Then use that score to estimate what your payments will likely be. Even a small change in your interest percentage can mean huge savings–or losses.
2. Take It Easy On Your Credit
What I mean is, now is not the time to be making big purchases on credit. That can impact your debt-to-income ratio negatively.
The same goes for opening new lines of credit. Now is the time to hit pause on anything that could hurt your credit score. You want to go all-in on making sure your first mortgage has an affordable interest rate.
3. Figure Out What You Can Afford
This is the time to be brutally honest with yourself. Don't try to make the numbers work by assuming a rosy future. Just take a hard look at your current finances and what you're on track to achieve.
It's also wise not to overextend yourself. You probably don't max out your credit card each month, even though you potentially could. It can also be a bad idea to max out your budget just because you've qualified for a mortgage.
If it is your first mortgage, then there's a good chance this isn't your dream house. There will be time to upgrade down the road. Now is the time to focus on putting yourself on the sound financial footing to do that.
4. Get All Your Documents Together
You don't want to go marching into the lender's office, only to go marching right back out again five minutes later to gather documents.
It can be a pain, but you should have a number of documents on you when you head to the lender. Pay stubs, tax returns, bank statements, W-2s, and even a marriage license may all be necessary.
5. Think About Your Options
The 30-year, fixed-rate mortgage is what most people think about when they talk about mortgages. But there are plenty of other options available.
Can you afford larger monthly payments? Then a mortgage with a shorter time-span and lower interest may be a smarter choice. It will depend on your individual situation, but keep in mind that the faster you pay it off, the less you'll spend.
If you don't think you'll be in this house very long, then it might be worth it to look into adjustable-rate mortgages.
6. Save for a Down Payment
Speaking of paying it off quickly, do you know how large a down payment you can afford? The standard is 20% down but we have several programs that allow for significantly less. Sometimes as low as 3% or even zero in some cases.
Again, the caveat here is that you'll probably end up paying more, possibly including mortgage insurance.
Another tip–make sure the funds for the down payment are in your account 60-90 days ahead of time. This is called "seasoning" the funds, and it's often required for loan programs.
7. Look for Assistance for Your First Mortgage
Here's one that many people forget about. Both the federal government and many states offer assistance to first-time home buyers. For your first mortgage, you may be entitled to tax credits, interest-free loans up to a certain amount, and other perks.
It's up to you to take advantage of these programs, and you may be able to combine them for substantial savings.
8. Get Pre-Approved
Getting pre-approved before shopping for a home isn't strictly necessary. However, it is a major plus when you start shopping.
Getting pre-approved is basically the same as being approved for a mortgage, but it doesn't specify a certain house. It just shows that you've been approved for a certain type of mortgage.
This is great for shopping because it shows sellers that you're serious about buying their home. They can be confident that financial issues won't gum up the sale of the house once the process has begun.
9. Compare Rates
Many first-time home buyers accept the first mortgage they're offered. But contrary to what you might believe, it's won't hurt your credit score to get multiple mortgage applications. As long as they're all within the same short time period, that is.
It all comes back to that interest rate. Even the numbers way after the decimal point can have a major effect on how much you pay down the road.
10. Remember Closing And After-Closing Costs
There are a number of things to think about here. Closing costs–the cost of closing your mortgage–can run from 2-5%. Depending on the cost of the home, that can be significant.
But you'll also need homeowners insurance and home inspections. And don't forget that you'll likely need to buy furniture and all the other things that make your first house a home.
When piled on top of each other, these expenses can break a budget quickly. Add them all into your planning, and then budget a little extra just in case.
Buying a home and getting a mortgage can be quite overwhelming if you're not prepared for it. It can also be a difficult experience if you aren't working with the right lender.
But now you know some of the steps you'll need to take to make that mortgage work for you. All that's missing is a lender who understands your needs.
Here's the last tip–let the KC Mortgage Guy get you the mortgage you need for your new home. Contact me today and let's get you started on the path to the perfect mortgage.