As a first-time home buyer, you’re bound to have tons of mortgage questions. It’s okay not to know much about what to expect or how to be prepared to buy a new home. We’re here to make it as easy as possible for you. Check a few of the things you can be prepared for ahead of time-
What do I need to get a mortgage?
Before borrowing any money, our local lenders will want to see that you’re reliable in paying off past debts, so you’ll need to start establishing credit.
Things like getting a credit card, paying it back carefully, putting money toward your car and college loans each month will help you establish credit and help you get a mortgage.
If I have bad credit, how can I improve it?
The first step is to always check your credit report. Many times we see borrowers you think they have bad credit, but are actually doing better than they thought. Credit reports can be downloaded for free once a year!
If you’ve got bad credit, a lot of times there’s aged activity on there, like an old collection, a medical bill, something you may have forgotten about or didn’t even know about. These types of “errors” can often be fixed, which can boost your credit score fairly quickly.
However, if you do have a bunch of bad marks and late payments, it’s best practice to start paying on time and your score will gradually improve.
What’s the difference between a mortgage pre-approval and a pre-qualification?
Just so you’re aware, pre-qualification is not going to hold the same weight as a pre-approval, which is oftentimes something that catches a lot of first time homebuyers off guard.
Getting pre-qualified involves supplying a bank or lender with their overall financial picture, including debt, income, and assets. The lender reviews everything and gives an estimate of how much the borrower can expect to receive. Pre-qualification can be done over the phone or online, and there's usually no cost involved.
Getting pre-approved is much more involved. A pre-qualification is a good indication of creditworthiness and the ability to borrow, but a pre-approval is the definitive word. You, the borrower. must complete an official mortgage application to get pre-approved, as well as supply the lender with all the necessary documentation to perform an extensive credit and financial background check.
Going through the pre-approval process also offers a better idea of the interest rate to be charged. Some lenders allow borrowers to lock in an interest rate or charge an application fee for pre-approval, which can amount to several hundred dollars.
How much down payment do you need for a mortgage?
The standard down payment for a mortgage is 20%. So, say the home’s price is $200,000, you’d ideally have to pay up $40,000 of your own money to get the loan.
If you don’t have that much, there are other options to help you get a loan. You can put down less, but that means you’ll have to pay PMI, or private mortgage insurance. That’s an extra fee of about $50 to $100 a month that lenders will require to mitigate the risk that you might default on your loan due to your lack of funds.
There are some exceptions that allow a buyer to avoid PMI, even with a small down payment. Buyers who are in the military, veterans, and family members of veterans may be able to avoid PMI with a Veterans Affairs loan. And once your equity in your home rises above 20%, you can stop paying PMI.
What kind of down payment assistance is available?
If you’re looking for help with a down payment, gifted money has helped many people qualify for a loan.
If private assistance isn’t an option, or isn’t enough, another option is to consider the over 2,000 down payment assistance (DPA) programs across the country. As long as you meet eligibility requirements in terms of income and credit, you may be able to qualify for a DPA program. Make sure to ask your local lender first if this is the right move for you.
Have no fear; the homebuying process can seem overwhelming, but our team of experienced mortgage professionals will make sure you are well taken care of throughout it all!