Purchasing a home is one of the largest investments you will ever make. And in many cases, particularly for first-time homebuyers, you will need some financial help to make it happen.
A mortgage is a loan from a lender that will help you pay for your home. But, you won’t be able to receive this home loan in one day. It can involve a long and sometimes complex process.
Let’s talk about how you can qualify and receive a mortgage to purchase your dream home.
Get Your Finances in Order
Before you will be eligible to receive a home loan, you must have your finances in order. All lenders will carefully look through this information to ensure you are not a risk and they can confidently lend you a large sum of money.
Before walking into your lender’s office, work on the following:
- Improve your credit score. Your credit score will affect the type of loan that you qualify for. The higher your score, the more likely you are to receive a home loan, and the better your interest rate will be. If you have a score of less than 620, take the time to improve it before you purchase a home.
- Lower your debt-to-income ratio. Most lenders will not offer you a loan if your debt is more than 36% of your monthly income. If yours is, you must work on paying off your debt before purchasing a home.
- Have a down payment and closing costs ready. Purchasing a home requires a significant upfront cost. Ideally, you want to pay 20% of the home’s purchase price and have money set aside for closing costs — usually between 2% to 5% of the home’s purchase price.
Get Pre-Approved for a Mortgage
Once you have your finances in order, work with a lender to receive pre-approval for a mortgage.
This is not a guarantee that you will receive the mortgage but it shows sellers that you are a serious buyer and it lets you know exactly how much house you can afford.
Officially Apply for Your Loan
Once you have made an offer and it was accepted, you can apply for your mortgage through your lender. There are many mortgage options available and your lender can help you choose the right one for your specific situation.
Keep in mind that your mortgage lender will require a substantial number of documents including pay stubs, tax returns, credit reports, and proper identification. You will need to work closely with your lender to ensure all documents are provided so your closing date is not delayed.
Once your mortgage is approved, you can officially close on the house and make it your own. If you have any additional questions, work with your real estate agent and lender.