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April
17
17
Mortgage 101: Tips for First-Time Buyers
Buying a home can be a daunting process, especially the first time. Our real estate agents can help you find the perfect house, but finding it is only the beginning. You also need to get a mortgage. How do you do that? Here are a few tips to help you.
- Finding a Lender. Who will you borrow money from? Finding a lender that's a good fit for your situation is important. Start by asking your friends and family members who have recently been through the mortgage process for recommendations. Then, vet those lenders on sites where you can see ratings and read reviews. Look not just for a lender who gives easy approvals and low rates but one who can guide you through every step of the process and ensure you get the best home for the best deal.
- Pre-Approval. The mortgage process often begins before you find a house rather than after. Sellers want to be sure you're not wasting their time but can secure the money they're asking for. Therefore, before you start looking, getting pre-approval is a good idea. This means the lender has approved you for a loan of up to a certain amount based on your qualifications. This will give you an idea of your price range and help narrow your search as you look for St. Louis homes for sale.
- Documents. To qualify for a loan, you'll need several documents. Proof of income shows you have a steady paycheck and can make the monthly mortgage payments. It includes two or more years of federal tax returns, your pay stubs, and W-2s (or 1099s or other tax forms). You'll also need a credit report to demonstrate that you can handle debt responsibly. For most lenders, you'll need a credit score of 620 or higher to get approved.
- DTI. Lenders will also look at your debt-to-income ratio when screening you for a mortgage. You can prove you've got a steady paycheck, but how much can you reasonably pay your lender? If you have student loans, auto loans, credit cards, or similar debts, those payments are added together and divided by your gross monthly income. To secure a mortgage, your debt typically needs to account for 50 percent or less of your total income.
- Underwriting. Pre-approval doesn't automatically guarantee you a loan. Once you've found the specific house you want to purchase, you'll need to submit a loan application and wait for final approval from the lender's underwriting department. They'll double-check and confirm all your information from the pre-approval process, then have the property appraised to ensure you're getting a fair deal. Based on their findings, they can either approve your loan, suspend it pending further investigation, or deny it.
- FHA Loans. If your credit score isn't enough to secure a conventional home loan, consider one from the Federal Housing Administration (FHA) instead. These loans are federally insured, and you can be approved with a credit score of 580 and a down payment of 3.5%. If you can afford a 10% down payment, you can secure an FHA loan with a credit score as low as 500. The FHA also typically offers lower interest rates and lower monthly payments than conventional loans.
It's not easy applying for a mortgage, but if you know what to expect, you can increase your chances of being approved, leaving you one step closer to owning your own home. Contact us if you're ready to find your dream house.
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