When you’re trying to buy your very first house, you don’t want to risk letting the home of your dreams slip through your fingers simply because you didn’t secure the best mortgage loan. But, the good news is that a little proactive planning can up your chances of moving from renter to home owner status.
Here are 5 tips to consider when you are buying your first home:
#1. Assess Your FinancesEven before you begin browsing the real estate listings; it’s important to understand how much home you can afford and what type of mortgage loan you might qualify for.
Applying for a loan that your financial assets cannot support will only delay your goal of buying a house. You should also take the time to understand the costs and monthly financial obligations that accompany homeownership, such as homeowner’s insurance and property taxes prior to applying for a mortgage loan.
#2. Review Your Credit Report and ScoreYour credit report and credit score play a huge role in whether or not you are approved for a mortgage loan. Your credit also influences the interest rate and terms of a home loan, which in term affects the amount of your monthly payment. Review your report from all three credit bureaus at least six months prior to applying for a mortgage loan and work to overcome any negative items that may be dragging down your score.
It also pays to be honest with your goals and research the lenders most likely to approve your application with your credit in mind. Remember, too many credit inquiries can be detrimental to your score so be sure your finances are in good enough shape so that you have the best chances of being approved.
#3. Save for a Down PaymentYour down payment amount impacts your monthly home loan payment in many ways. It not only reduces the size of the loan you borrow, but in a competitive real-estate market, it could be the difference between your offer being accepted or declined. Pay down your debts and save what you can in order to have a strong debt to income ratio and a better chance for a loan approval.
Your down payment also determines whether or not you’ll be required to pay for mortgage insurance. When your down payment is less than 20 percent of your purchase price, mortgage insurance can tack on hundreds of dollars to your monthly mortgage loan payment, ultimately influencing your ability to afford your home. So saving as much as you can prior to buying a house can make your mortgage more affordable for when you have the keys in hand.
See Also: How Much House Can I Afford Calculator
#4. Organize Your PaperworkIn addition to pulling a copy of your credit report, having copies of your financial, tax and employment documents on hand can help move your mortgage approval process along quickly. Having about six to twelve months’ worth of solid documentation will help make the approval process go much smoother. It will also give you a chance to ensure that the information any potential lenders are seeing is error-free and can support the declaration that you are a good candidate for a mortgage loan.
#5. Avoid New Credit InquiriesWhen you apply for a loan or line of credit, an inquiry is placed on your credit report where it remains for two years. While an inquiry alone won’t likely send your credit score plummeting, multiple inquiries in your credit history will affect your credit score calculation.
Therefore, before and during the mortgage application process, it’s important to avoid seeking new credit cards or personal loans – you may risk putting enough of a dent in your credit score that can keep you from getting a better rate or even qualifying for a mortgage.
Securing your dream home takes more than submitting a mortgage loan application. However, these tips to qualify for your first mortgage can help you put your best foot forward when applying for a home loan, whether it’s the first, third or last home you’ll ever buy!
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc. © 2013 ConsumerInfo.com, Inc. All rights reserved.