In purchasing your first home, you’ll have to spend a considerable sum of money. With that said, you have to be wise. Most first-time buyers will submit their applications for a mortgage loan to get their dream home, but the process can be exhausting, especially if you don’t know what you’re getting yourself into. Make sure to educate yourself and make the necessary preparations before submitting your applications.
Below is a guide to help you streamline the mortgage application process.
Let’s Talk about Mortgage
Mortgage loans refer to the financing option that allows you to purchase or refinance a house. It’s an excellent means of buying a home without paying the cash upfront.
Who Is Qualified?
Most first-time homebuyers apply for a mortgage loan to get their first house. It’s only applicable for individuals who can’t pay the total price of a house upfront. In other cases, people apply for a mortgage or home loan even if they can settle the price upfront.
For example, investors often apply for mortgage loans to put their financial resources in other kinds of investments.
Educate yourself about the eligibility requirements you’ll have to comply with to qualify for the loan. Hence, you should have a decent credit profile, a debt-to-income ratio that doesn’t exceed 50%, and a steady income.
Loans vs. Mortgages
Loans will provide an individual with a lump sum where the applicant agrees to pay that amount back. On the flip side, a mortgage refers to another loan option that can aid you in buying your first home. Bear in mind that not all loans are mortgages. Mortgages are secured loans where the borrower presents collateral to a lender if they stop paying.
If you’re applying for a mortgage, your home is the collateral. If you stop paying for your mortgage, the lender can repossess your property, known as foreclosure.
Common Mistakes to Avoid
If you’re not entirely familiar with the real estate market, it’s challenging to determine how you deal with things. Your emotions can often influence the buying process. Here are a few mistakes that you’ll have to avoid to streamline your first purchase.
Not Building a Decent Credit Profile
You won’t need a unique credit profile to get your dream house. Individuals with a decent credit profile are the only ones who can get the best interest rates. People who don’t have a good credit profile can still submit their applications for a mortgage loan, but the only disadvantage of that is they’ll have to pay more.
Keep track of your credit profile regularly. If you find unauthorized transactions or disputes, you still have time to make the necessary corrections. Hence, building a decent credit profile is the first step in getting your dream house. You’ll have to depend on a guide or tool that will teach you how to build a decent credit profile.
Underestimating the Closing Costs
You’re the homeowner, so you’ll be solely responsible for the expenses connected with repairing or maintaining your property. In addition to your monthly mortgage loan, you’ll have to think about property taxes and homeowners insurance premiums. While buying a house, you might also have to pay for private mortgage insurance if the downpayment is lower than 20%. Your PMI can range from $83 to $250 per month on a $200,000 loan.
Owning a house is not cheap. Don’t limit the planning to the mortgage application and buying procedures. You’ll have to think ahead to set your realistic budget. Then, you’ll also have to think about repair and maintenance expenses, utility bills, and homeowners association fees. Joining a first-time homebuyer training program can help.
Only Meeting with One Lender
Talk to multiple lenders because their interest rates differ. Take advantage of that slight difference to save a massive amount of money during the entire loan’s duration. Each lender will also have different charges. For example, other lenders can charge you an application fee, while others offer free mortgage pre-approval. Talking to different local lenders will equip you with the knowledge you can use during the buying process.
You are not Preparing Your Down payment.
One of the biggest hurdles of purchasing your first home is the down payment. However, you’ll have different financing options that will aid you in overcoming this. Both USDA and VA loans will not need a down payment. That includes down payment assistance (DPA) or a zero-down mortgage.
VA loans are for veterans, military personnel, and their partners, while USDA loans are for low-income to moderate-income borrowers planning. But with USDA loans, you’ll have to buy a property from suitable locations for the application to be approved.
Educate yourself to get the knowledge needed to streamline the application and buying process. Overall, the buying process entails getting approved, shopping around for a good deal, making an offer, getting final approvals, and closing the deal. Keep in mind that there’s a wide variety of interest rates and mortgage loans you can choose from.