First-time Home Buyer? 5 Tips for Getting the Best Mortgage
For those ready to realize the dream of home ownership, getting the money is usually top of mind. That can cause the where, when and how of acquiring a home mortgage to be stressful. Here are some tips to make your journey more enjoyable and fruitful.
- Know Your Credit Score
Credit scores are key factors in mortgage approvals and can help determine interest rates and loan terms. Take a few minutes to pull your credit report or order your credit score for review. Low credit scores or even credit fraud can derail a mortgage application. To improve your score, pay bills on time and lower outstanding debts. Also avoid opening any new credit accounts after applying for a mortgage until the home loan closes.
- Have Cash Ready
You’ll need a down payment; with minimums based on varying factors such as the type of loan and the lender. The higher the down payment, the lower the mortgage balance and the less need for private mortgage insurance — which means lower monthly mortgage payments.
You’ll also need money for closing costs — generally 3% to 5% of the mortgage balance — home inspections, home appraisals, title searches and credit report fees to name a few costs. Prepaid insurance and escrow account needs can easily add an additional 2-4% of the purchase price.
Start saving early. Set aside tax refunds and work bonuses. Set up an automatic savings plan and keep track of your progress.
- Know What You Can Afford
Generally speaking, you can purchase a home with a value of two or three times your annual household income. However, the amount that you can borrow will also depend upon your employment history, credit history, current savings and debts (debt-to-income ratio), and the amount of down payment you are willing to make. You may also be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value.
- Determine the Best Mortgage Option
Your choice depends on a number of factors, including your current financial picture and how long you intend to keep your house.
Options for those struggling to come up with a down payment include conventional mortgages that conform to standards set by the government-sponsored entities (Fannie Mae and Freddie Mac) and require as little as 3% down; Federal Housing Administration loans, which permit down payments as low as 3.5%; and Veterans Affairs loans, which may require no down payment.
A 30-year fixed mortgage — where the interest rate stays the same during the life of the loan — will get you the smallest mortgage payment. If you can qualify to make larger payments, you may be able to get a lower interest rate with a 20-year or 15-year fixed loan.
An adjustable-rate mortgage guarantees a low interest rate for the first few years of the mortgage, but after that interest changes periodically — typically rising in relation to a pre-determined index.
- Get a Pre-Approval Letter
Being pre-approved for a mortgage loan allows you to know what you can spend before bidding on properties; and having a pre-approval letter in hand gives the impression to the seller that you are a more serious buyer.
The pre-approval process involves contacting a mortgage lender, submitting your financial and personal information, and waiting for a response. The lender prints a pre-approval letter for your records, but you must continue to qualify for the loan when your credit and income is re-verified by the mortgage underwriter. Negative changes can cause you to no longer qualify.
ValueBank Texas provides many loan products, each suited to our individual customers. We can help you evaluate your mortgage choices and help you make the most appropriate decision. Apply for a mortgage now by contacting us at (361) 888-4451.
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