How to Get Approved for Your First Home Mortgage
Purchasing a first home is one of life’s most memorable experiences. But depending on a range of variables, that memorable experience can be either a positive one or a negative one. Luckily, there are some things you can do to help make getting approved for your mortgage a lot easier, and one of the most important is being prepared.
The home buying process is complex because there are so many moving parts involved. So, the better prepared you are, the quicker and more efficiently the process will go. You can still expect it to take anywhere from 30 to 60 days before you can close on your home, but if you are well prepared and you’re a qualified buyer, then you can have as short a waiting period as possible.
Here’s everything you need to know about getting prepared for your first mortgage application.
Start Saving Early
While there are some mortgage loans that may be attainable with little to no money down, there are significant benefits to saving up and putting at least 20% of the home’s selling price down. For one, putting money down tells a lender that you are prepared and serious about buying, so they may look more favorably on your application.
Second, it tells the lender that you know how to save money, and that will also cast you in a positive light. And lastly, putting at least 20% down on your home allows you to avoid paying private mortgage insurance (PMI) every month, and this can save you a lot of money over the life of your loan.
Determine How Much Home You Can Afford
Before you start shopping for the home of your dreams, it helps to have a price range to look within. So, take the time to do the math to determine how much home you can reasonably afford. This will help ensure that you keep your home search to those safely within your budget.
Review Your Credit
Your credit score will impact not only your loan approval chances, but it also is a driving factor in your loan’s interest rate. So, naturally you want your credit score to be as high as possible to get the lowest rate. Since it takes some time for your credit score to be updated by the big three credit bureaus, it is important to start reviewing your credit report early, so you have enough time to strengthen it by having any incorrect information removed and by paying down your debt as much as possible to lower your debt-to-income ratio (DTI).
Research Your Mortgage Options
There are several different mortgage options for first time buyers to choose from and they can all be confusing when a lender starts discussing them all for the first time. But, you can avoid this confusion by simply by doing your own research before you apply. This will allow you to determine which mortgage products you might be interested in and which you aren’t.
Compare Lenders, Mortgage Rates, and Fees
Not all lenders are the same, so it is important to do your due diligence when shopping around for your lender. Asking your friends and family for referrals is always a good place to start. Once you have a list of a few lenders, check their online reputations, compare their rates and fees, and narrow down your list of candidates, and then schedule appointments with them.
Gather Your Documents
Before you have your sit down meeting with a lender, make sure you have all the documents that they will require to pre-approve you for a loan. Having all the required documents is one of the most important things to do if you want your approval to go smoothly and quickly. Here are the documents you will most likely need:
- Personal information (state-issued driver’s license or ID card, passport, or U.S. alien registration card)
- Social security card
- Most recent pay stubs
- 2 to 3 months of bank statements for all accounts
- W-2s (for last two years)
- 2 years of tax returns (if self-employed)
- Investment account statements
- List of all monthly debts (including creditor names and contact information, total balances due, and the required minimum monthly payments)
- Retail information (if applicable)
- Landlord references (if currently renting)
- Gift letters
Get Pre-Approved for a Loan
You should apply for a pre-approval prior to starting the home shopping process. You can apply for pre-approvals from multiple lenders to shop rates and it shouldn’t hurt your credit score as long as you apply for them within a limited time frame, such as 30 days. Once you get your loan pre-approval letter, then you can start shopping for your first home. Having your pre-approval letter in hand before you shop for a home also shows sellers that you are already approved for your mortgage, thus making you a much more attractive buyer.
When you’re shopping for your first home, it can be so exciting that you can easily forget that the mortgage process can be long and tedious. Following the steps above will help you ensure that you’re well prepared, so you can get through every stage as quickly and easily as possible and into your new home.
