Buying your first house is a rite of passage for many adults. The process of financing has changed significantly over the past few years, and even experienced home buyers are not always sure what to expect.
Unless you’re planning to pay with cash, before you look at houses online or enlist the help of a realtor, the smart thing to do is get pre-approved by a lender, such as Quicken, USAA, or Regions Bank. You want to be sure you’re shopping for what you can afford, and your realtor will be able to take you seriously if they have the assurance a pre-approval letter provides. Obtaining pre-approval is very similar to applying for the actual loan, and having it saves you a lot of time once you’ve found your ideal first house.
Provide Identification, Financial background, and Proof of Income
Mortgage lenders like Premium Mortgage Corp are required to justify to federal agencies and mortgage insurers why they are lending you this large sum of money. To build their case for lending to you, they need to be certain you are who you say you are, and that you can afford the payments for the foreseeable future. This information is required for you to be pre-approved or apply:
- Current government-issued identification.
- Most recent month’s pay stubs showing year-to-date figures and company information.
- Most recent two months’ bank statements showing deposits and funds for down payment and closing.
- Alternate credit history (if you have limited credit history on your credit report).
- Social security number (to obtain your credit report).
- Quote from the homeowner’s insurance company, if you have a property in mind.
If you show up to the lender prepared with this information, you’ll have a much better experience and get your answer more quickly.
Remember the bank has to justify lending to you. That means if there is anything unclear about our sources of income or deposits, or if there is questionable information on your credit report, or if they are unable to verify your employment, they are going to call or email you to get it explained. The more easily you communicate with them, the sooner they can move on to the next step. The entire process can take a month or longer, depending on the type of mortgage loan you choose.
Minimize Your Monthly Debt
One of the most common practices that derails a first time home buyer’s success is obtaining new debt or increasing existing debt before the papers are signed and closing is over. Do not charge any more to your credit cards, and certainly do not apply for new ones. Wait to purchase car, furniture, jewelry, or any other big-ticket items until after your closing is done and you are handed keys to the house. Why? Because a very important part of your ability to qualify for your first home purchase is called your debt-to-income ratio, which is the total of your monthly debt payments (including student loans, credit cards, car payments, medical collections, store credit cards, gas cards, etc.) divided by your gross monthly verifiable income.
So if your monthly debt payment total increases because you buy a car or finance a TV, you jeopardize your ability to afford the new mortgage payment. The seller, your realtor and lender will not be happy if you surprise them the day before closing with a new debt-to-income ratio because you couldn’t wait to buy a new sofa.
Shop for More than Just Your House
Prior to closing, your lender will ask you select an attorney to handle the closing paperwork, a homeowner’s insurance company, and possibly a flood insurance company, depending on where you live. The lender may recommend an attorney to serve as closing agent, but you’ll want to shop around for the best insurance coverage for your new home.
Practice Your Autograph
At closing, you’ll sit with your attorney, the sellers, and the real estate agents. If your lender provides great customer service, they’ll attend the closing with you to help answer questions and look out for errors. All of them will review each page of the mortgage documents with you and offer support as you sign your name up to dozens of times.
Preparation is key to enjoying your experience as a first time home buyer. With the right lender and a clear understanding of your total financial picture, you’ll enjoy anticipating moving day!