Four Tips for Getting Your First Mortgage
Buying your first home is sure to be exciting. But it will also be challenging. Before you begin looking for your dream house, you need to ensure you can get a mortgage. Here are four great tips to help you get started.
1. Prove Your Income, e.g. With Recent Paystubs
You should get your documentation in order before you apply for a mortgage. You will need to prove your employment status and income, which you can do easily with the use of a helpful online pay stub maker, as well as your identity, address, and more. In addition to proving your income with recent paystubs, you will need to show documents like your driver’s license, Social Security card, and bank statements.
2. Estimate How Much You Can Afford to Borrow
Before you apply for a mortgage, you should figure out how much you can safely spend on a property. You can use an online mortgage calculator to help you determine your price range based on factors like your income, debt, credit score, and location. The lender will use two types of debt ratios to determine how much you can borrow. Lenders typically expect your monthly repayments to be no more than 28% of your income before tax. They also usually expect your total debt, which includes the mortgage payment, to be no more than 36% of your pre-tax income. The ratio that produces the lowest payment is the one that your lender will use. So, make sure your mortgage payment fits not only your lender’s standards but also your own budget.
3. Improve Your Credit Score
Your credit score will often be a determining factor as to whether you are accepted for a mortgage. The score will also affect the interest rate you are offered by the lender. Quite simply, the higher your credit score is, the more you will be able to get a mortgage and a good interest rate. So, you may wish to take steps to strengthen your credit score before you apply for a mortgage. Some of the best methods you can use to increase your score are: always paying your bills on time, keeping credit card bills as low as possible, keeping your current credit cards open, and tracking your credit score regularly to keep an eye on any potential errors.
4. Examine Different Mortgage Options
It is crucial that you compare different mortgage lenders and their rates and terms and conditions in order to find the best option for your circumstances. But before you do that, you also need to know what your different mortgage options are. Different mortgages have different eligibility and down payment requirements. Most fall into one of these categories:
· FHA Loan. The Federal Housing Administration insures this type of mortgage loan and enables you to make a down payment of as little as 3.5%.
· Conventional Mortgage. This option is not guaranteed by the government but some conventional mortgage loans for first-time buyers require as little as a 3% down payment.
· USDA Loan. You could qualify for a mortgage loan guaranteed by the US Department of Agriculture if you are a rural home buyer. USDA loans typically do not require any down payment.
· VA Loan. If you are a veteran, you could get a mortgage loan that is guaranteed by the Department of Veterans Affairs. It usually requires no down payment.
Furthermore, you have options regarding the mortgage term. Most commonly, people choose a thirty-year fixed-rate mortgage. With a fixed-rate mortgage, the interest rate stays the same. If you choose something like a fifteen-year mortgage, you will typically pay a lower interest rate but higher monthly payments.
This article does not necessarliy reflect the opinions of the edtiors or the management of EconoTimes