Review these expert tips before starting the homebuying process for the first time.
So you’ve decided to take the first step toward purchasing your first home. You’ve now earned the title of first-time homebuyer!
Now that you’ve made this important decision, it’s time to educate yourself on the home loan process so you can make the best possible decision for your unique needs and financial situation.
Purchasing a home is likely to be the largest financial transaction you ever make. By keeping yourself informed of the basics of the home loan process – from application to closing – you will set yourself up for success. With the assistance of an experienced real estate agent and a Waterstone Mortgage loan professional, it should be an efficient, stress-free, and ultimately rewarding experience.
There are many things to understand throughout the mortgage process and it’s nice to have a little help along the way. We’ve compiled several mortgage resources with helpful tips and information to assist you in getting started with your first-time home purchase.
1. Monitor Your Credit Score
Having a good credit score is essential when applying for a loan. It shows lenders that you’re a trustworthy, stable client and helps indicate your ability to pay back borrowed money.
Your credit score is comprised of a few categories, including payment history, amount owed, types of credit, and new credit.
Keeping an eye on your score will help you stay informed ahead of buying your first home. If your credit score is lower than you’d like it to be, you can do a few things to increase your credit score, such as:
- Pay off debt
- Pay your bills on time and in full
- Diversify the types of credit you have (add a credit card in the mix – and pay it off monthly – if you only have loans or unpaid debt in your credit history)
2. Monitor and Improve Your DTI
Like your credit score, your debt-to-income ratio (DTI) plays a large role in getting approved for a home loan. Your DTI serves as a gauge of where your money is going and how much money you have left over after paying your monthly bills.
To calculate your DTI, simply divide your monthly debts by your monthly income. Generally, you’ll want to keep your DTI below 45% for most mortgage programs.
3. Get Pre-Approved
A pre-approval includes an analysis of your credit, financial, and employment information. Knowing what you can afford provides you with confidence and a stronger offer.
To take it one step further, you can get a Platinum Credit Approval. This is a more in-depth version of pre-approval, as it involves a full underwriting review in addition to everything required for a mortgage pre-approval. A Platinum Credit Approval provides you with the next best thing to a cash offer and can speed up the closing process.
4. Save for a Down Payment
While a large down payment isn’t always required to get a mortgage loan, many individuals opt to put some money down when buying a home. In most cases, putting 20% down allows you to avoid paying Private Mortgage Insurance (PMI).
Some loan programs have no down payment requirement – like VA or USDA loans. Other programs require a small down payment (3-5%) – like conventional, FHA, or construction loans.
Down payment assistance is available in many states for first-time homebuyers. This can provide up to 5%, and often comes in the form of a forgivable grant.
5. Prepare for Closing Costs
Closing costs include the various charges associated with the homebuying process outside of the purchase of the property. This can include things like title work, the appraisal, home inspections, credit reporting, origination fees, and more.
The total amount you’ll pay in closing costs varies from homebuyer to homebuyer, but it typically ends up being around 3-6% of the purchase price. Be sure to prepare for this when you start thinking about buying your first house.
6. Brush Up on Common Mortgage Terms
As a newcomer to the mortgage lending process, or even a seasoned veteran, some terms may be confusing or difficult to understand. If things like “discount points,” “fixed rates,” or “PMI” sound like a foreign language to you, you’re not alone!
We’ve compiled a list of the most commonly used terms and what they mean.
7. Explore Loan Types
Your loan originator will discuss loan options with you, but it doesn’t hurt to do a little research in advance. We offer a wide variety of home loan programs from conventional and government to a variety of specialty loans – like jumbo loans, loans for doctors, construction loans, and more.
To simplify the process, try out our Loan Decision Tool. This short quiz will ask you a few questions about what you’re looking for, then provide a recommendation for what type of loan might be the best fit for you.
8. Learn How to Submit a Competitive Offer
A carefully constructed written offer is much more compelling than a verbal offer. In your written offer, you can highlight items that make you a strong buyer (e.g., a first-time homebuyer doesn’t have another house to sell).
Although financing is a key point of emphasis, putting in a competitive offer upfront will let the seller know you’re a serious first-time homebuyer. Things like a Platinum Credit Approval will help your offer stand out.
Congratulations on your decision to purchase your home. Don’t forget to contact a local mortgage expert with any questions you may have along the way – we’re here to help!
*In accordance with federal regulations, consumers are not required to provide verifying documentation until after they submit an application, receive a Loan Estimate, and state an intent to proceed with the transaction. Pre-approval is a service offered by Waterstone Mortgage to consumers who are interested in getting pre-approved for a mortgage loan before they submit an application. If you wish to receive a Loan Estimate, you must submit an application for credit.