If you are about to start house hunting, knowing the basics of home buying can prove beneficial. Buying a home can be an exhausting process. You don’t wish to get into any trouble, especially when applying for a mortgage. Here’s an overview of some mortgage basics for new homebuyers:
1. Look For Programs with a Low Down Payment
Many new homeowners are between the process of buying a house or saving for a sizeable down payment. Of course, the down payment will affect your lending and financial terms. The industry average is a 20% down payment, and for any new homebuyer, this can be a major turn-off. However, many mortgage programs, such as the Federal Housing Authority loans, require less than 20% down payment to initiate the home purchase process. Thus, ditch saving for the initial cost to purchase a home by contacting firms offering low down payments along with friendly policies.
2. Maximize Your Credit Score
Your credit rating is the most critical factor that affects your mortgage rate. The lower your credit score, the higher the interest rate will be, and vice versa. Before you begin searching for your home, improve your credit rating to get the best interest rate. Besides, there are some easy ways to improve the score, and this can include paying your credit card debt and not applying for new credit in the meantime.
3. Get a Pre-Approval Letter
You can receive pre-approval for a mortgage, which will help the homebuyer estimate the money a lender may be willing to lend based on their current income and credit score. As you get closer to buying a home, you should opt for pre-qualification before you apply for a loan. The lender will thoroughly examine your financial position and will confirm in a written letter about the sum they are willing to lend you, including the terms and condition. A pre-approval letter during your home search will demonstrate your seriousness to the seller, which is a great way to stay ahead of the competition.
4. Have Your Documents Ready
Many new homebuyers are absent of the fact that mortgage requires a bit of paperwork and having documents beforehand can save a lot of time. The lending firm usually has a loan officer to check and verify all the documents before moving forward with mortgage agreements.
- Latest Bank Statements and Paychecks
- Tax returns of at least last two years
- Proof of timely payment of bills
- A complete and comprehensive list of all your assets and liabilities
- Credit report and proof of additional income
In addition to the above, the loan officer can also ask for further documentation if he thinks it is necessary for screening process which can include gift letters, proof of timely rental payments and profit and loss statements.
For a new homebuyer, navigating the complexities of a mortgage can be a tough process. With little to no knowledge about the procedure, a person might face an undesirable situation that can increase the interest costs. If you are planning to apply for a mortgage, do in-depth research about the procedure to make the best decision.