Buying a new home for the first time can be a fantastic adventure and the start of an exciting new chapter in your life – but it can also be quiet a daunting prospect. Dealing with realtors and attorneys can be intimidating if you’ve never done it before, not to mention the question of whether you will even qualify for a new home. The truth is that the process of getting a mortgage and buying a home can be quite straightforward, but it can pay to do your homework in advance.
The first stage in getting a mortgage is to review your credit report. Your credit score is one of the main factors in determining whether you qualify for a new home, in terms of both whether you will be able to get a mortgage and how much you will actually be able to borrow. A high credit score, for example over 700, will make lenders see you as a lower-risk borrower, and this can open up both the number of lenders and the number of mortgage deals available to you. A lower credit score might not stop you getting a mortgage, but it may limit the lenders and deals that you will be able to choose from.
There are three major credit reporting companies in the States: Equifax, Transunion and Experian. As well as providing a credit score, your credit report will include details of any current and past debts and credit commitments. It’s important to check your credit report for any errors or disputed debts. Errors can affect your credit score, but the good news is that you can write to the credit reporting company or the business that reported the debt to have the error corrected.
Part of the process of applying for a mortgage involves the lender assessing your income to ensure you can afford the mortgage amount you’ve applied for. Typically they will want to see your two most recent paycheck stubs and your past two years’ worth of income tax returns, as well as your past two months’ bank account statements. You will also be asked for documentation for any other form of declared income, such as commissions, investments or alimony payments.
There is a lot of choice in the mortgage market, and it’s a good idea to do a bit of research to decide what your best options are. Will you opt for a fixed interest rate or variable? How many years do you want to take the mortgage over? There are also more specialized types of mortgages aimed at specific profiles of customer. For example, armed forces veterans may qualify for a VA loan, a mortgage with no down payment and typically a lower interest rate than many standard mortgages. If you are on a lower income or have a less than perfect credit score, then you may qualify for an FHA insured loan to help you qualify for a new home.
When it comes to looking for a mortgage, you can either approach lenders directly, or use a mortgage broker who has access to multiple lenders and deals. If you are buying a newly built property, you should be aware that most homebuilders have preferred lenders. Once you have chosen a lender, you can apply to be pre-approved for a mortgage. Once you have your pre-approval letter, this can be submitted with your purchase and sale offer, demonstrating to the seller that you have the financial backing to buy the property.
And that’s pretty much it! If you’re looking for new homes for sale and perhaps wondering whether you will even qualify for a new home, don’t panic. Take your time to do your homework and to make the choices that will be best for you in the long run, and you’ll be well on the path to new home ownership.