From preapproval to your first mortgage payment, the home-buying process can generate a number of questions for first-time homebuyers. How do I get a loan? Do I need a down payment?
You may have an idea of what questions to ask when looking for a house, but what about the questions to ask when it comes to the mortgage application process? “People may to go into the house buying process without asking detailed or enough questions,” Karry Lewis, Manager of Mortgage Production at Regions Bank.
Here are some questions to ask yourself that may help guide you through the mortgage process.
What Does My Credit Look Like?
One of the primary concerns for any first-time homebuyer should be maintaining a good credit profile.
“First-time homebuyers need to understand the importance of building a good credit history by paying their bills on time,” says Lewis. “The worst-case scenario is someone with bad credit, bankruptcy, collections on their credit report. They don’t have assets, and they haven’t managed their finances well.” Making sure you have good credit, stable income, and assets available to buy a home is a good place to start.
Are There Programs Available to Help Me?
A big misconception about buying a home is that a 20 percent down payment is required. However, it may not be necessary for all mortgage transactions. If you buy a home without a 20 percent down payment, your mortgage lender will likely require private mortgage insurance, which protects the lender in case of a default. Calculate a mortgage payment to see what you can afford.
But there may be additional options as well. You may be eligible for a Veterans Affairs (VA) loan, which requires no down payment, or Federal Housing Administration (FHA) loan, which requires a 3.5 percent down payment. Some programs even permit gift funds from eligible donors or funds from down payment assistance programs to be used for down payment and closing costs. Visit HUD for a list of homebuyer programs in your state.
How Do I Get Preapproved?
It’s best to be armed with a preapproval when you start looking for a home so that once you find something you like, you’ll be able to make an offer, although remember that preapprovals expire, so you want to do so close to the time you’re buying a home. Get started with these two steps:
- Research and compare lenders. Find one that offers the loan products you’re interested in, and that understands your financial situation and needs.
- Consult with a mortgage loan originator. “You have to have an honest conversation about your finances and be upfront,” Lewis says. “If there are potential hurdles, then you can work through them.” The mortgage loan originator can provide information regarding qualification for different types of mortgage loans.
Can I Afford to Pay the Mortgage for the Preapproved Amount?
As you plan for your next big purchase, make sure you’ll be able to comfortably make payments every month that stay within your existing budget. Factor in maintenance when you’re calculating your monthly costs. Use mortgage calculators to determine how much home you can afford.
When Should I Make an Offer?
You love the location, the features of the home, and the price. So it’s time to make an offer that fits your budget. There may be some negotiations that happen before the deal is finalized, so plan ahead and leave a little wiggle room for your offer.
How Can I Protect My Purchase?
Once the seller accepts your offer, you should get a home inspection to ensure the home is in good condition. For instance, the house may look good but could have some hidden defects like water damage or a weak foundation that a professional may be able to detect. You’ll likely also need home and title insurance to meet the terms of the loan from your mortgage lender. Also, if you’re a first-time homebuyer, consider getting a home warranty, which typically covers repair and replacement of major home systems and appliances due to normal wear and tear.
What Closing Documents Do I Need to Sign?
The amount of paperwork can be daunting, but be sure to take your time and make sure the documents are accurate. And most importantly, always read the fine print. The Consumer Financial Protection Bureau Closing Disclosure Explainer helps you check all the details of your mortgage.
Making Your Mortgage Payments
Your mortgage payment may include the principal, interest, homeowner’s insurance, and property taxes. If you have an FHA loan or private mortgage insurance, your payment may also include that expense. Make your payments on time every month to keep your credit in good standing. “A home purchase is the biggest investment most people will ever make,” says Lewis.
Once you decide you’re ready to dive into the real estate market, make sure you know what to expect when buying a home.
