What You Need to Know About Landing Your First Mortgage
If your dream of buying your first home was put on pause in 2022 due to interest rates rising so dramatically, low inventory, and other real estate problems, then 2023 may prove to be more accommodating.
While no one can accurately predict when interest rates are going to fall or when inventory will increase, most experts agree that things will improve at some point this year. So, if you want to get into a new home this year, then there is no time to waste getting prepared.
Here are five things to consider when shopping for your first mortgage in 2023.
#1: Optimize Your Credit Score
Your credit score always matters when shopping for a mortgage, but with the interest rates as they are, today it is even more important to have as high a credit score as possible. This means you will want to try to get your score at least above 670, but preferably even higher. In 2022, the average credit score for new home buyers was 746. So, if you want to secure the best possible rate, then you should start reviewing your credit report and doing that you must to get your score as close to 800 as you can.
#2: Don’t Get Your Heart Stuck on One House
Buyer competition in 2023 shouldn’t be as stiff as it was in 2022, but that doesn’t mean that you’ll be able to buy the home of your dreams without having to deal with other offers. Plus, with mortgage interest rates where they are and housing prices continuing to climb, there’s a real possibility that your selection might not be as plentiful as you had hoped. In many cases, buyers will have to sacrifice certain wants and instead buy the home they can afford. In the worst-case scenario, you might even find yourself priced out of the market.
#3: Get Pre-Approved for Your Mortgage
Getting pre-approved for your mortgage is one of the best things you can do when buying your first home. Taking this step not only allows you to know the price range you should be looking in, but it can also be a strong negotiation tool should you get into a bidding war with another buyer. As long as nothing in your job history or credit profile changes from the date of your pre-approval, you will have no problem getting funding for the home you want to buy.
#4: Gather Your Documents Before Meeting Your Lender
Buying your first home will require you to gather a lot of different documents that your lender will need before they can approve you for your mortgage. Since you want to get pre-approved, that means you will need to get these documents together, so you have them ready for your first meeting with your mortgage lender. The documents you’ll need to provide your lender include:
- Personal identification
- Proof of employment
- Monthly income statements
- Financial history statements
- List of debts
#5: Choosing Your Mortgage Type
Most first-time home buyers use a mortgage to purchase their home, and the odds are high that you probably will too. With so many different types of mortgages to choose from, it’s important to understand the best mortgage options that are available to you.
There are five primary mortgage loan types, and they each have their own unique set of rules and requirements. These mortgage types include:
- Conventional mortgage: This type of loan requires at least a 3 percent down payment and a credit score of 620 or higher. Conventional mortgages are usually best for those with steady income and money saved up. They are also most popular among first-time buyers.
- FHA mortgage: FHA loans usually require 3.5 percent down, but unlike with a conventional loan, borrowers with credit scores lower than 620 can get approved for them.
- USDA mortgage: USDA loans are backed by the U.S. Department of Agriculture. They can be acquired with zero down but are restricted to homes in rural areas.
- VA mortgage: Like USDA loans, VA home loans are backed by the U.S. Veterans Affairs Department and require no down payment. They are only available to current and past U.S. military members.
- Portfolio mortgages: These loans are privately held by lenders, so the rules and requirements are unique to the lender. Approval typically requires higher-than-average income and credit.
Now that you know more information about the home mortgage scene in 2023, it’s time to start preparing for your application. Consider the above factors and put in the necessary work. Make this the year you get into your first home with the best mortgage for your budget and needs.
