Buying your first house is one of the most important and exciting events in your life. There are lots of things that you can do to make sure that you are ready for the financial responsibility of a mortgage. You want to be as prepared as possible prior to signing for such a large purchase. Being financially strong is a great way to ensure that your transition to homeowner is a success.
You should be able to go into a mortgage feeling confident instead of scared and stressed out. This is not a decision to make lightly or spontaneously, and requires you to work out a long-term plan for your life. The more prepared you are to take on a mortgage, the easier time you will have with the whole process.
You may not know that much about the ins and outs of buying a home since it’s your first time and there are several common mistakes that you will want to avoid. Get your plan in order and make sure that you have taken all the right financial steps to make getting your first mortgage a breeze.
Check Your Credit
Mortgage lenders will be looking at your FICO scores to determine the risk in the investment, so you should know what to expect with your credit rating. Every person is legally entitled to a free credit report once a year from one of the three main credit bureaus. You will be able to see where you currently stand on the scale. A score of 700+ is considered to be good credit. Anything below 500 is considered poor credit. You will want to make sure that your score is high enough to give you enough borrowing options with reasonable interest rates. Also, check through your whole report to make sure that there are no errors or unresolved credit issues to deal with.
Avoid Common Mistakes
If you are thinking about applying for a mortgage, there are certain financial activities that you should avoid. It’s not a good idea to change jobs too close to a mortgage application. The lender will want to see that you have a reliable and steady income and are not entering a new and uncertain position. Don’t make any large purchases like a car, as this could throw your debt ratio out of balance. Closing or opening any credit card accounts can also affect your debt to credit limit ratio and cause you to not qualify for the best interest rates.
Get Your Papers In Order
Having all of your paperwork ready before you visit your lender can save you a ton of time and hassles. Your lender will want to see the following documents when you apply for your mortgage:
- Past 2 years of tax returns
- Past month of pay stubs with YTD figures
- Quarterly bank statements
- 2 years of W-2 forms
- Proof of deposit
- 2 years of past residential history
Prepare Your Down Payment & Closing Costs
The standard down payment on a mortgage is 20% of the cost of the house. You can talk to your mortgage advisor about the best plan for you if you want to put down a smaller percentage. Keep in mind that the larger the downpayment that you can produce, the lower your interest rates and monthly payments will be. Don’t forget to include the closing costs into your home budget. With rates hovering around 5%, your closing costs and fees can be a big chunk to come up with even as a one-time fee.