Buying a home is one of the most signi ficant projects you will undertake in your life. When applying for your first home loan, you might feel intimidated and wonder if you will qualify. This article is a guide to applying for your first home loan, and a checklist of what you will need. below in this article, we will cover the Improving Your Chances As A First Time Home Buyer.
Choosing a House
Before choosing your dream home, find out how much you can afford. You are in the best position to find out how much money you can put aside for a mortgage every month without affecting your financial health. Choose a home within your monetary limit to avoid missing mortgage payments.
Home Loan Pre-Approval
The first step in any home buying process is getting through the pre-approval stage. Imagine going house hunting, finding the perfect home, only to realize you cannot afford it. Getting pre-approved for your first mortgage help you find a house with a budget in mind.
When you apply for your first home loan, the lender will focus on your financial strength rather than it being your first time. Here are some of the items that the lender will look into:
- Your total income
- Your credit score
- Your expected downpayment
- Your financial assets
- Your outstanding debt
Getting finances in order before applying for a home loan will increase your chances of qualifying for more substantial amounts with lower interest rates.
Start Saving on Your Down Payment
Many lenders now accept down payments lower than the conventional 20%. It is possible to find a loan with a down payment as little as 3%. However, a smaller down payment means higher interest rates, including mortgage insurance. You can set up automatic savings, take up an extra job, and cut down on expenses to ensure that you save at least 20% of the home’s value.
Taking Advantage of Local Programs
Many states have first-time homebuyers assistance programs that allow no down payments, discounted interest rates and tax credits. For example, the U.S Department of Veteran Affairs runs the VA loan program for veterans. Under the plan, veterans and their families qualify for no down payment loans.
You can also look into grant programs if you’re struggling to raise the downpayment for your first mortgage. For example, the National Homebuyers Fund can cover part of your downpayment and closing costs. Mortgage Credit Certificates are also an excellent way to lower your tax burden.
Work On Your Credit Score
Having a mortgage in your credit report can improve your chances of qualifying for a loan. Unfortunately, as a first-time homebuyer, you may not have this to your advantage. However, you can improve your credit report through auto loans, personal loans and credit cards. When you apply for loans and pay them off, it reflects positively on your credit report.
However, you need to ensure that you keep your debt as low as possible, especially in the 6-12 months before pre-approval. Avoid taking up new loans and pay off existing debt. Lower your credit card debt as much as possible to improve your credit score. Remember also to pay your bills on time because they also reflect on your credit report.
When you shop around for a mortgage, the first inquiries do not damage your credit score. The soft inquiries that view your credit score do not affect your credit report. However, hard inquiries such as actively applying for a new mortgage affect your score. Try and make multiple inquiries within the first 30 days because they do not change your credit report. However, within 45 days, all mortgage inquiries are each treated single inquiry and will affect your credit report.
To qualify for a good home buyer loan, your credit score should be at least 620. However, to find the best rates, your credit score should be above 720. You can check your credit score online for free and work on improving the score before applying for a mortgage. Lower interest rates mean lower costs for owning your own home. If you have an opportunity to lower the cost, take it.
First Time Home Buyers With Bad Credit
If your credit score is below 620. You can still qualify for a home loan as a first time home buyer. One of the ways you can improve your chances of qualifying for a loan is making a sizeable down payment. With bad credit, your interest rates will be high, which means you will pay more to borrow money. However, it does not have to be forever. If you make your monthly payments on time and improve your credit score, you can refinance your mortgage at a lower interest rate.
Remember that if you cannot find 20% of the property’s worth as down payment, you will incur an extra cost for private mortgage insurance. You will continue paying the insurance until you pay off at least 20% of your property.
Qualifying for your first home loan is hard but definitely possible. By applying the tips above, you will have an easier time qualifying for your first mortgage