Buying a home is a big deal. Whether you're a first-time homebuyer or shopping for your next home that finally has enough bathrooms, stepping inside a home you call your own is everything good. Deciding to shop for a new home can feel exciting in the beginning.
But once you're ready to take action, things can get stressful very quickly.
We're here to help change that.
This guide will help you navigate the process and give you a mini-blueprint to help you stay on track.
You'll learn the basics about mortgage loans, what to expect when you make an offer, a few common mistakes to avoid, and why it's so important to get pre-approved before you start shopping.
When you know what to expect you can breathe a little easier.
So let's get to it.
You might be new on the block, just out of college and buying your first home.
If not, be sure to check out Advantages for first-time homebuyers to see if you meet the guidelines. You might be surprised.
In this section, you'll also find a quick overview that covers different types of mortgages, a reminder to set a budget ahead of time, and why getting pre-approved is one of most important steps you can take.
Even if you've owned a home before, you might still qualify for the advantages that are available to first-time homebuyers.
According to the U.S. Department of Housing and Urban Development (HUD), a first-time homebuyer is someone who meets any of the following conditions:
As a qualified first-time homebuyer, there a number of benefits and options available to you:
If it looks like you might qualify, be sure to talk with your mortgage lender about what which benefits might be available to you.
Answering this question early will save you the emotional angst that shows up when you find a property you love, but can't afford. As tempting as it is to start dreaming big, setting a budget ahead of time will save you time and energy later.
Even if a lender says you're approved for $400k, it isn't a green light to max out when you start house shopping. As a new homeowner, there will be costs in maintenance and renovations, homeowner's insurance, property taxes, and possibly private mortgage insurance. You might also have higher energy bills, homeowner's association fees, and landscaping costs.
In general, a high credit score and low debt-to-ratio will help secure a better loan. So as much as you're able, work toward improving your credit if needed and reducing your debt load (if any).
The good news is that there are lots of loan options even if your credit isn't perfect right now, especially for first-time homebuyers.
A good loan advisor can help you navigate the process and put together a custom home loan that's a great fit.
Typically, to qualify for a standard home loan you'll need a debt-to-income (DTI) ratio of less than 40%. For competitive rates and better options, aim for all your housing expenses (principal, interest, taxes, and homeowners insurance) to be closer to 30% of your total monthly gross income.
Your mortgage lender will ask for documentation to verify income, employment, debts and assets, and also run a credit report. Your credit score, debt-to-income ratio, and credit history are all considered when determining your loan qualifications.
First-time homebuyers have some advantages and more flexibility when it comes to these guidelines. Make sure to ask your loan advisor about which benefits you might qualify for as a first-time homebuyer.
A mortgage calculator is another useful tool that can give you a ballpark figure that shows you what a monthly payment might look like depending on the interest rate, loan amount, and some optional terms.
As soon as you start shopping for a new home, one of the most important steps you can take is to get pre-approved for your home loan.
Getting pre-approved is different than getting pre-qualified.
Getting pre-qualified is a pretty straight forward process. Your mortgage lender will request some standard information about your earnings, assets, liabilities, and run a credit report. After they have your information you'll receive a ballpark figure of what you might be able to afford when it's time to make an offer on a new home. It's useful as a reference, but once you move forward in the loan process, you might find that the final home loan amount is different.
Getting pre-approved means that your mortgage lender has already approved a full loan amount for your home loan. Getting pre-approved will help you stand out among other potential buyers and also lets sellers know you're serious and you'll be able to close fast.
A pre-approved loan will give you peace of mind when you're shopping and a competitive edge when you decide to make an offer on your perfect home.
Even though the U.S. government is not a mortgage lender, there are three government agencies that back loans in order to make homeownership more affordable.
Preferred Rate also offers dozens of specialty loan options and government-backed mortgage loans which can be combined with the popular mortgage terms listed above to create a truly customized mortgage loan for you.
A great loan advisor at a full-service mortgage lender will take care of every step of the lending process:
A great loan advisor will be able to:
The economy and the housing market can shift rapidly.
Homework time. After you’ve visited a property, take time to reflect on what you really want since things can shift as you start viewing homes in person. Asking the right questions will help provide a bigger picture.
Make sure to bring the following:
After all the paperwork is signed you’ll get the keys to your new home!