Buying a home is one of the biggest purchases you’ll ever make. You’ll have a less stressful experience as a first-time homebuyer if you save early and educate yourself on what mortgage lenders are looking for, so you can make yourself a more attractive applicant. These tips will help you understand the home buying process and what it takes to get approved for your mortgage.
Review Mortgage Options
Before you can determine your out-of-pocket costs, you’ll want to know what type of loan you expect to qualify for. Traditional lenders want a down payment of up to 20 percent. The government has special mortgage loan programs for rural residents, veterans, and active duty military members. These programs allow you to buy a home with no down payment. First-time homebuyers in other areas can qualify for a special FHA loan with a down payment of 3.5 percent. The FHA loan does not require certain income levels to qualify, but it does have credit score minimums. Review qualifications for these programs, so you can estimate down payment amounts.
Anticipate Costs and Save Early
On top of the down payment, you will need to cover closing costs, which vary by state and typically cost up to 5 percent of the home price. Do the math to determine the price range for your desired home and the amount you’ll need to save for a down payment and closing, then automate transfers to a savings account to stay on track.
Build your credit score
Lenders will check your credit score when evaluating how much they can lend you. A higher credit score saves money by reducing the interest rate you’re offered.
To boost a low credit score, pay bills on time, every time. If you can afford to do so, pay more than the minimum for credit card payments to chip away at your debt. Don’t close any credit cards, as this can actually hurt your credit score. Instead, keep the account open but put the card in a drawer, so you’re not tempted to use it.
If you’re shopping pre-existing homes, you may find a home that needs improvement before it is move-in ready. As you prepare for your mortgage, consider researching home improvement companies and specialized contractors, so you have a trusted service provider you can turn to for everything from plumbing to roofing repair.