What to Do before Getting Your First Mortgage
So you've made the decision to get a mortgage. Before signing a deal with the first lender that comes knocking, you'll want to take time to make careful plans for such a big step.
The Planning Stage
There are a lot of requirements that determine whether or not you get approved for a loan, like your income, as well as your debt-to-income ratio. But before all that, you'll want to do some careful planning to be sure you're not about to take on more than you can handle.
Some of the things you'll want to consider before diving in are:
- Qualifications and Loan Types – Before choosing just one loan, consider what kinds of loans are out there and what your qualifications are. There are many different loans and lenders with varying terms and rates, so shop around.
- Capacity – As you know, buying a home is a big decision. You'll want to know how much you can actually afford, so take note of as many details of your expenses as you can, from pet food to gas to hair products. You'll want to be sure that you can make your mortgage payments without suddenly having to sacrifice some forgotten expenses. People sometimes make the mistake of projecting a larger income than they end up having, which can make payments very difficult. It's better to plan for a safer scenario.
- Additional Costs – As you determine your capacity, remember to include upfront and closing costs in your budget, as well as other fees. When discussing loans with lenders, ask about additional costs so you can plan accordingly. You'll also want to factor in the cost of any appliances or other purchases you may need to make for your home.
- Emergency Fund – You'll want to consider creating a fund in case of unexpected job loss, injury, or other emergencies come up during the life of your mortgage. Having a reserve can actually be favorable to lenders—it shows that you're more likely to make future mortgage payments, lowering their risk.
Things to Do Before You Buy
Some actions to take before getting a mortgage are the following:
- Check Your Credit – Credit is a huge part of getting a home loan. Check your credit at least a few months ahead of applying for a mortgage so you can spot any problems early and have time to fix anything that is hurting your score. If your score isn't ideal, consider working on raising it, since a higher score can get you better rates on a mortgage. Similarly, if your debt-to-income ratio (DTI)—the amount of money you spend on debts compared to your gross income—is not looking good, consider paying off some debts before applying for a loan.
- Get a Pre-Qualification or Pre-Approval – You'll want to make sure to get pre-qualified or pre-approved. Both can give you useful information to use for negotiations.
- A pre-qualification is a simpler, earlier step that can give you a general idea of what kind of home loan you could qualify for.
- A pre-approval can signal to the seller that you're serious about buying, as well as give you even more information to use for the transaction. It is more involved than a pre-qualification and requires more information, like credit and financial background information.
Finding the Right Loan and Lender
Even if you've read everything there is about mortgages, knowing where to start to actually find a good lender and loan can be a little overwhelming.
To fit many different circumstances, there are many types of loans, from conventional loans to USDA and FHA loans.
There are also some loans specifically for first-time homebuyers that may have relaxed qualifications and options for a lower down payment. One great resource is the Department of Housing and Urban Development's Local Homebuying Programs page. Click on your state and then on "Assistance Programs" (under the "Buying a Home" section) to look for first time homebuyer programs that may be available in your area.
Speak to Multiple Lenders
There are hundreds of other helpful pages on the web, but one of the most valuable resources you have are mortgage professionals. They can look at your unique situation and make recommendations based on years of experience. Remember, though, that it is very important to always speak with multiple lenders. Rates, terms, and requirements can vary widely between lenders, even with government-backed loans.
Basically, even if you feel you've found the perfect loan type and a great bid from a lender, don't move forward until you've received bids from multiple other lenders.
Here to Help
At Low VA Rates, we specialize in VA loans for veterans. We want the home buying experience to be a great one for every veteran. We are committed to helping you get to the future you want for yourself and your family. We have seen firsthand how owning a home changes lives, and we are here to help you in that journey.
For any mortgage questions or to start looking for a loan that's right for you, check out other sections of our website or call us at (866) 569-8272.