Many beautiful and complicated elements mingle together to make up the cornerstone of our lives: family, friends, career, hobbies, spirituality.
One such element is taking out your first home mortgage.
As exciting as this proposition can be, it’s also an expensive one and not something you want to enter into lightly.
Especially, since so many do.
Almost half of first-time buyers don’t shop around. A majority apply to one lender and make their decisions based on information provided to them by a salesperson.
Do your homework and the person who wins, in the end, is you.
Keep reading to learn five simple things about your first home mortgage to help you in the long run.
1. Do a Credit Check First
Taking stock of reality is never a bad idea.
Before you jump into the world of mortgage payments, it will be good for you to know where you stand with lenders.
Knowing your credit score will help you know what your chance of getting approved for a mortgage with a reasonable interest rate is. Everyone is entitled to their credit report free of charge, once per year.
Check out what your credit score is on Credit Karma.
Don’t like how the numbers have turned out? Go over your report with a fine tooth comb, and look for any inconsistencies with your own records. Notify past and present lenders of any errors you may find, and see if you can boost your numbers.
2. Assess and Gather Documentation for Your First Home Mortgage
A great question to ask yourself before you take out your first home mortgage is, what can I afford?
It would be a good idea to track your spending for a few months and find out where all of your money goes (if you’re not doing this already).
As you’re assessing your financial situation, be sure to keep the documentation you find. Lenders, such as Metropolitan Mortgage, are typically going to want the following:
- Two fresh pay stubs
- Your W-2’s for the past few years
- Your tax returns
- Your last two months of bank statements (including those annoyingly blank pages)
3. Decide What You Can Afford
Keep in mind you shouldn’t be spending more than 28-30% of your income on your mortgage. Be sure you find a realistic payment plan for your budget, and you have room in your spending scheme for it.
Also, don’t forget you won’t be renting anymore. If there’s something wrong with your toilet, you can’t call a landlord and rely on them to fix it anymore.
You are now the owner.
You are responsible for fixing up the house and investing capital into it.
4. Be Aware of “Hidden” Fees
There is more to pay for than simply your mortgage. Here are a few more “hidden” fees to consider before taking out your first mortgage.
You’re going to need to put a downpayment on the house (typically 3-20% of the total cost). If you can’t afford the down payment on a house, then keep shopping until you can!
Housing Tax and Insurance
Research tax rates and housing insurance for the area you’re looking to buy in before you take out a mortgage. Occasionally the insurance can double your mortgage, and the house you thought was so affordable quickly becomes an overwhelming burden.
There is often a “closing fee” for closing on the house. Often, the seller will cover this for you, but you should ask about it before you commit to the purchase.
5. Get Pre-Approval from a Mortgage Lender
Nothing is going to make you more attractive to a potential seller than pre-approval for a mortgage. You are more of a safe bet for them to begin to pursue.
Shop around to various mortgage lenders, armed with your credit score and extensive documentation, and make sure you’re getting the best rate possible.
Take the Plunge
Taking out your first mortgage is a big step and one you should take with great care.
It’s one of the largest, most expensive commitments you will ever make. Be sure you have as much information as you can before entering into any kind of agreement. Find out your credit score, track your spending, and figure out a budget that’s feasible.
Contact a local lender for more information and to find a mortgage plan that’s right for you.
Happy house hunting!