Buying your first home is one of the most important and exciting decisions you will make, but it can also be overwhelming. Understanding how the home financing process works can help alleviate any anxiety you may feel along the way. Before applying for a mortgage, here are three important things to consider as a first-time home buyer.
Evaluate your credit file
When applying for your first home loan — or any loan for that matter — it’s important to know your credit score, as well as what’s on your credit report. This is one of the main factors that lenders consider when determining your eligibility for a loan.
Here’s what lenders most often look at when they review your credit report: credit score, payment history, outstanding debt, length of credit history, and credit variety. (Lenders want to see that the borrower has experience using multiple sources of credit reliably. For example, having a credit card plus a car loan shows your ability to repay both loans at once. installment and revolving debt.)
If the information on your credit report meets the lender’s criteria, the loan program and interest rate you qualify for will, in most cases, be determined using these factors. To make sure you get the best loan terms (including interest rate and repayment options), be sure to check your credit report regularly for new items or any errors. This can be done for free on sites like annualcreditreport.com. If you see any errors on your credit report, you may have the option of filing a dispute, but it’s important to consult a mortgage advisor to ensure the timing doesn’t affect your eligibility for your potential loan.
Review your finances
Another important factor when applying for a loan is to prove that you have a stable income because, again, you must be able to show that you can repay your debts. The options for proving your income stability vary depending on your type of employment. Most people will need to provide two years of work experience, while additional documentation may be required for freelance and commission jobs. We recommend discussing your income with a mortgage advisor to ensure you have the correct documents at hand when applying for a mortgage.
There is a common belief that a 20% down payment is required to buy a home, but there are loan programs available that require less money as a down payment. Programs like the First-Time Homebuyer and other FHA loans require smaller down payments, so it’s important to discuss all of your options with a mortgage professional to determine which loan is right for you. If you’ve just started the process and are just curious about how much house you can afford, take a good look at your finances.
Supplementary Costs Budget
Along with the down payment and closing costs, it’s important to remember that owning a home comes with additional expenses that you might not have had living in an apartment or renting a house. From HOA dues to utilities, property taxes, maintenance costs and repairs, having at least two months of expenses as an emergency fund can save your life.
“Let’s Talk Money” is powered by CommunityAmerica Credit Union, one of Kansas City’s leading mortgage lenders. This week’s article comes from Jackie Reed, our Outgoing Mortgage Sales and Branch Manager.