Buying your first home can be equal parts exciting and stressful. With so many details to consider and so many to-do list items to take care of during the home buying process, it can be easy for any first-time home buyer to feel a little overwhelmed. Fortunately, you don't have to go it alone! Below is a simple guide that will give you the basic steps to getting your first mortgage.
1. Check your credit report.
Creditworthiness is the number one factor lenders consider when determining whether or not to approve someone for a home loan. In other words, does the borrower demonstrate a history of paying their bills on time, and in light of their current income and credit history, will they be financially able to make their monthly mortgage payments?
Since your credit report is one of the main tools lenders use to determine your creditworthiness, you will need to obtain a copy of your credit report before applying for a mortgage loan. This is so important is because it is not unusual for credit reports to contain errors and omissions, and these mistakes can sometimes put a damper on your FICO score, which in turn can affect your ability to be approved for a home loan.
Federal law allows you to obtain one free copy of your credit report each year through AnnualCreditReport.com (the only government-approved credit reporting website), so be sure to take advantage of this free tool and review your credit report carefully. If you notice any errors or mistakes, you can file a dispute with the creditor to get the incorrect information changed or removed.
2. Get pre-approved for your mortgage loan.
The purpose of the pre-approval process is to determine your eligibility for a mortgage loan, as well as how much you can expect to borrow from your lender. Once you've filled out the necessary paperwork and have been pre-approved, your mortgage lender will typically provide you with a letter that shows you how much you are eligible to borrow to purchase a home.
To potential sellers, a pre-approval letter can serve as a sign that you are a serious buyer, and in some cases, it can make the difference between your offer being accepted or rejected as a first-time home buyer. Keep in mind that even if you have been pre-approved for a higher amount than you expected (which is not unusual), you should only borrow what you know you can reasonably afford to pay back.
3. Set aside funds for up-front costs.
There are dozens of ways to finance a home, but generally speaking, a down payment ranging from 10% to 20% of the purchase price will be required. The down payment serves two main purposes: it demonstrates your commitment to purchase the home, and it can help you secure a more favorable interest rate, which translates to lower monthly mortgage payments.
The down payment is perhaps one of the biggest obstacles first-time homebuyers face, because it requires setting aside a substantial amount of up-front cash. Closing costs are another important factor to consider, as they can range between 2% to 5% of the total mortgage balance. Fortunately, when you obtain a mortgage loan through General Electric Credit Union, you can enjoy the privilege of having zero out-of-pocket closing costs!
4. Keep your finances as consistent as possible before closing.
Try not to make any major financial changes during the period of time between pre-approval and closing. This could include a job change, applying for a new credit card or financing a major purchase such as a new car. It is standard practice for lenders to double-check your credit and income just a few days prior to closing, and if they see any major changes to your financial picture, it could jeopardize your ability to obtain your mortgage loan.
Buying your first home comes with its own unique set of challenges, including understanding what is required to obtain your first mortgage. Keep the above guide in mind to help the process go a little smoother. Here's to finding the perfect new home!
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