Buying a home for the first time is one of the most important financial decisions you will make in your life. Because of this, buying a home and taking out a mortgage also requires you to manage your finances effectively, in ways like setting aside emergency money and assuring that you can handle the financial weight of a monthly mortgage payment. There are many steps you will have to take when applying for a mortgage loan, from choosing a lender to obtaining pre-approval. If you’re seeking a loan as a first-time homebuyer, there are various things you should keep in mind:
What makes a First-Time Home Buyer Loan different?
Depending on your financial situation and where you’re looking for a home, there may be special programs available to you as a first-time homebuyer. These programs are meant to give you extra help with finding affordable financing for your home. Some of the more notable programs include FHA loans, USDA loans, and the HomePath ReadyBuyer program – offered by Fannie Mae. These and other government-sponsored programs will help you get the home that you want at a cost you can afford.
How is your credit?
Your credit plays a critical role in your home purchasing process and can make or break your ability to qualify for a mortgage. If you have poor credit, it may be difficult for you to acquire a mortgage loan that is favorable to you. You may even be blocked from getting a mortgage loan at all. You should do your best to both achieve and maintain a good credit score so that you can receive the best loan for you. If you do not have a good score, wait before applying for a loan and work to boost your credit score.
How much can you afford?
Although an obvious question, this is still an important question to ask. If you aren’t sure of what you can and can’t afford, you may sign up for a mortgage that is incredibly difficult for you to pay back. Once you’ve chosen a loan option that is appropriate for you, you’ll want to start saving up for both the down payment and closing costs. The down payment could be as high as 20-25% of the loan amount or as low as 1%. Closing costs, typically a small percentage of the total loan amount, include items like attorney fees, applications fees, and mortgage insurance. After closing, you will be faced with the various costs associated with homeownership. Along with making monthly mortgage payments, you will also need to be able to pay other expenses such as HOA fees, taxes, utilities, and reconstruction fees.
After considering these questions and developing a strong understanding of your finances, you can begin applying for a loan. Although a big financial commitment, purchasing a home and taking on a mortgage is an incredibly rewarding experience!