Buying your first home is a huge life milestone. It’s also the biggest expense you’ll have to cover in your lifetime. Even millionaires apply for mortgages because buying a home is downright expensive — there’s no way to sugarcoat it.
Perhaps you’re a first-time mortgage buyer looking to build generational wealth? Or you want to buy an investment property to sell down the line? Whatever the case, there are quite a few steps between applying for a mortgage and kicking back in your yard, beer in hand.
Here are some of the dos and don’ts you want to keep in mind during the mortgage-buying process.
- Do Make Sure You’re Ready To Commit
The number factor one you must keep in mind is preparedness. You must be ready to commit to a mortgage loan as the average loan term spans 15-30 years. Buying a home is kind of like getting a tattoo on your face. You have to be 100 percent sure you’re ready for it.
Sure, you don’t have to live in your home for the entire span of the mortgage. But it’s still a major commitment and you need to be in the right phase of your life to take on a mortgage.
You’ll need to assess whether you’re ready to live in the home for at least 5 years. Do you have emergency funds or savings you can fall back on? And do you have a stable income to support the loan payments?
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- Do Maintain a Good Credit Score
Before you dive into the mortgage loan process, it’s important to take a long, hard look at your credit rating. If you have a decent credit score, you need to do everything you can to keep it that way.
When you submit a mortgage preapproval, your lender pulls up a credit report and assesses how capable you are of repaying the loan, based on your credit history. The last thing you want to do before you apply for a mortgage is to take out a new line of credit.
Keep paying your bills in a timely fashion. Don’t do anything to change or jeopardize your credit score as lenders appreciate consistent behavior patterns.
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- Do Save For a Down Payment
This shouldn’t come as a shock to you if you’ve done your homework on mortgages. But most of the time, you’re required to make a downpayment of 20 percent based on the value of a home in order to purchase a mortgage.
If you’re looking at a home that costs $500,000, for example, that’s a downpayment of $100,000. So, before you head into the mortgage loan process, you need to ensure you have a good amount of savings set aside for this all-important downpayment.
In some cases, you could qualify for state programs, tax breaks, and an FHA loan as a first-time homebuyer. This offers financial assistance such as reduced downpayment rates, downpayment loans, and grants. However, there are certain requirements you have to meet in order to qualify.
- Don’t Skip the Preapproval Process
Yes, it’s tempting to scour the market for your perfect home before you’ve actually secured a mortgage. But you want to avoid this before you go through the preapproval process.
Why? Because it sets you up for failure and disappointment otherwise. Before you begin comparing properties, you want to have a good idea of what type of loan you can actually qualify for, and what your budget will look like.
It’s also important not to confuse a prequalification with a preapproval for a loan. A prequalification letter is merely an estimated amount you could qualify for on a home loan. In short, it’s an informal evaluation of what you can afford.
Whereas a preapproval letter is something a little more solid. It’s a formal letter from your lender stating the exact amount of loan money you qualify for. This is the document you want to work with when scouting out potential future homes.
- Don’t Tie Yourself to Just One Lender
It’s a mistake to get a preapproval letter from only one lender, then go ahead with the mortgage deal. You could risk thousands of dollars by doing so. Ideally, you should take your time when choosing a lender and shop around a little.
This offers you a thorough basis for comparison. It’s also the best way to ensure you nab a good deal, with the lowest rates. If possible, you want to compare the rates of three different lenders before you make a decision.
Compare their rates, their loan terms, and lender fees. It’s also important to consider their level of customer service and how helpful they are during the process.
- Don’t Forget Closing Costs
It’s important to be aware of the fact that the downpayment you make is not your only expense when securing a mortgage loan. There are closing costs that you’ll have to budget for, too.
But, what exactly are closing costs? They are the fees you pay when you take over control of your new home. Closing costs also cover certain expenses that go to your lender for organizing your loan. Some of these expenses include attorney fees, appraisal fees, pest inspection, Escrow fees, and title insurance.
You can expect to pay 2-5 percent of the total loan amount in closing costs. The details of the closing costs you owe are found in a document called the Closing Disclosure which your lender will issue to you.
If this sounds daunting, you have a few benefits to enjoy as a first-time homebuyer. You may qualify for a government grant or loan that assists with closing costs. Or, you could also petition the seller to help you out with the closing costs in the form of a seller concession percentage.
All you need to do is be open about what you can and can’t afford and your lender should be willing to assist where they can.
Are You a First-Time Mortgage Buyer?
As you can see, applying for a mortgage is no walk in the park. But with enough preparation, research, and the right lender on your side, you can secure a loan that suits your needs.
As a first-time mortgage buyer knowledge is power, so you don’t want to miss out on the rest of this blog. Explore for a huge range of articles on all things buying and selling homes, real estate investing, finance, mortgages, and more.
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