Ready to take your hard earned money and hit the real estate market to find your dream home?
First, you're going to want to make sure you can afford that dream house. Enter: your first home mortgage.
A mortgage, by its nature, puts you in debt. It's also likely to be the largest debt load you'll carry.
This doesn't need to be intimidating but it does help build appreciation in what an undertaking having a mortgage is.
To qualify for a first home mortgage there are some steps you can take to ensure a smooth and relatively pain-free experience.
Know Your Credit Score
Before a lender approves you for a mortgage, it is important to know what your credit worthiness is. This is known as your credit score.
Credit scores typically range from 300-850 with 620-650 being the ideal number range to qualify. If you find yourself below this range, you'll want to address this first.
It's worth bearing in mind that the higher your credit score the better your rate will likely be.
Some ways to help better your credit score involve not carrying a balance on your credit cards or loans or having a large car loan. The sooner you can pay off your debts the more creditworthy you will get.
By addressing this first, you can save yourself the heartbreak of failing to obtain a mortgage while setting yourself up for future success.
Establish Your Capacity for Debt
Your capacity for debt is essentially how much you can realistically afford to pay toward your mortgage.
People often want the largest first home mortgage they qualify for. This can lead to some terrible financial situations. You do not want to over-leverage yourself by taking out a loan that exceeds your ability to pay it back. This is how people go bankrupt.
Be honest with yourself about your financial situation and ensure you're staying within your comfort zone.
A ballpark figure to help you understand where you sit financially is to have 41% or less of your income going toward debt. This tells lenders that you are in a solid position to pay off your debt.
Determine the Value of Your Assets
Obviously, the more money you have to go toward the purchase of your house, the larger the mortgage can be.
It's important to audit your assets to have a solid understanding of what your spending capacity is.
You'll also want to be mindful that you aren't looking at just the amount of your downpayment, but the associated costs as well. Closing costs, legal fees, and any prepaid insurance or escrow fees will need to be covered.
The better you understand your spending position, the more confidence you install in the mortgage lender. Be sure to show them that you have considered all costs and that you're able to cover them.
The more assured the mortgage lender is, the more favorable your mortgage will be.
Have an Understanding of the Market
You don't want to approach a mortgage lender without an idea of what you want to borrow. When applying for a first home mortgage you want to be very clear about what your needs are.
Determine what you want and what you need from your house. Set a list of priorities, what the must-haves are and what the ideals are. Gather a list of potential neighborhoods that are appealing and understand what the houses there are selling for.
The more information you have the better prepared you are. This creates the context for the value of your assets and your ability to carry debt.
Having a fine grasp of your first home mortgage needs allows you to position yourself where you are and where you need to be. This allows you to bring the mortgage lender the numbers that they need to establish your qualifications.
It's also an opportunity to understand what your price point really is. You may realize that you actually have a greater purchasing power than you originally thought.
The important thing is that you don't know until you do your homework!
Get Organized
When you're establishing all the above points make sure to gather and organize all relevant paperwork. The more prepared you are for the mortgage lender, the smoother things will go.
Have a full list of your current debts so that you are aware of what you owe. Have proof of your assets together so that there are no questions as to your value. Demonstrate how you can carry the debt load you're asking for without risk.
Keeping these items organized allows you to keep a clear view of your position. If you need to refer to any of this information, you'll have it easily accessible.
Get Quotes
Circling back to the idea that a first home mortgage is likely to be the largest debt you'll carry, you want to make sure that you are getting a favorable quote.
The difference of a percentage point on hundreds of thousands of dollars makes a massive difference when compounded over decades.
Understand the terms of your mortgage, too. Know whether you can lock in the rate and what the terms are if you need to break the contract early. Having a mortgage is a huge responsibility. The more you know about the terms of your agreement the more power you have over it.
Closing Thoughts on Getting Your First Home Mortgage
Buying a first home is an incredibly exciting experience. It can be an emotional roller-coaster full of unpredictability and uncertainty. You'll be competing with other buyers for limited properties. You'll find homes you love and homes you can live with.
With so much of the buying process out of your hands be sure to be in absolute control of the aspects you can influence.
The biggest variable you can manage is your first home mortgage. By using the above steps as a road map, you can put yourself in control of your buying power.
If you have any questions or need some advice please reach out and let us know.
AUTHOR BIO
Will Foster | First State Bank Mortgage Senior Loan Officer
I became a mortgage lender in 2010, right after the "bubble" popped, and the mortgage industry underwent an incredible transformation. This has given me a unique advantage in the fact that I have never known anything other than the highly-regulated world we now live in.
Throughout my years of experience, my primary goal has been to keep up with the constant changes in the industry so I can help my clients investigate all of their options and maximize savings. In addition, because I specialize in Conventional, FHA, USDA, Jumbo, portfolio, and VA refinances and purchases, I can help a wider variety of individuals, families, and investors identify and secure the right loan to best suit their future interests.
The mortgage process can be a little confusing and even overwhelming these days with all of the regulations. I guide my clients through the process from start to finish, and I try and make it as painless and hassle-free as possible.