How to apply for a mortgage as a first-time house buyer
In order to become a homeowner, you must first complete the mortgage application procedure, which entails a number of steps fraught with potential pitfalls.
However, submitting an application and waiting for a response are just the beginning of a longer process. Instead, there are a number of steps that must be taken before even applying for a mortgage. Even if your loan application is approved, you still have a few more things to do before you can move into your new house.
If this is your first time applying for a mortgage, this article will help you through the steps. Continue reading about how the definition of a “rich” existence is the ability to do things your way! If you want to make money, consider these 10 tried and true methods.
How to Apply for a Mortgage as a First-Time Home Buyer
This description of the mortgage process ought to (hopefully) help you feel a bit less overwhelmed as you go through the process of purchasing your first house. Here are the 10 steps for first-time home buyers to apply for a mortgage.
Ten Steps To Own A Home
Check your credit report and score as the first step.
Knowing your credit history and score is essential for understanding how to qualify for a mortgage as a first-time home buyer before you submit an application for a mortgage. Before you apply for a loan, you may need to have your credit report corrected if your score is lower than you anticipated because it can be inaccurate.
For a traditional mortgage loan, you must have a credit score of at least 620. For FHA loans, a minimum credit score of 580 is required. However, the better interest rate you can get the higher your credit score, which means you’ll save money.
A free copy of each of your credit reports from the three credit reporting agencies may be found at Annual Credit Report. Any errors you find in the report must be addressed through the submission of a dispute to one or more of the three credit bureaus (Equifax, Experian, and TransUnion).
Your credit report won’t contain your score. On the other hand, credit card companies frequently offer to provide you your score for free. You may also go to a website like Credit Karma.
Step 2: Put Your Down Payment in Place
It’s essential to have your down payment ready before applying for a mortgage if this is your first time buying a home. You might be aware that a 20% down payment is required in order to be eligible for a mortgage loan. Despite being preferable because it would reduce the size of your loan, it is not always necessary. You might just need to put down 3% if your lender determines that you can afford the mortgage payments each month.
Examine several lenders in Step 3
Researching several mortgage lenders is the next step in the process of applying for a mortgage as a first-time home buyer. Start with your bank or credit union; they might offer current clients discounted rates and service charges. You can also shop online. In general, you should compare the fees and interest rates imposed by at least three lenders.
Step 4: Gather the necessary application materials
You must submit several documents revealing your financial information to the lender in order to apply for a mortgage. The items you need are mentioned below.
• Check-related stubs
Your pay stubs from the last 30 days or more will be one of the first things the bank requests to examine. Stubs demonstrate your employment status and show your take-home salary, both of which are crucial components in determining how much house you can buy.
• Bank Statements
The most recent bank statement for each account you have should be provided at the same time. The lender can check your bank statements to discover how much cash you have on hand.
• Resource Directory
When you reveal other sources of income to your lender, you are required to give them a list of all your assets, excluding your bank accounts. More resources show that you can better manage the debt that comes with homeownership.
Accounting for Debts
Even while your credit report will likely contain the majority of the information about your debts, the mortgage lender may need to confirm specific payments or make inquiries about new obligations in order to accurately calculate your debt-to-income ratio.
The W-2 form
Even though you only need to submit one month’s worth of pay stubs, the loan officer will also demand copies of your W-2 forms from the preceding two years. The job and income histories are supported by W-2 forms.
Tax Returns from the Past
In particular, if you are self-employed and lack any W-2s to demonstrate your income, many mortgage lenders will ask for two tax returns instead of just one. If you didn’t keep copies of your tax returns, you can fill out Form 4506-T or Form 4506T-EZ to receive transcripts of them.
•Year-to-Date Income and Expense Statement
A full year-to-date profit and loss statement is another condition that banks frequently ask of self-employed applicants. Lenders can learn your company’s financial situation via a P&L.
• Evidence of Additional Income
You will need proof if you receive any extra money, such as Social Security benefits, commissions, overtime pay, tips, or bonuses. Your ability to obtain a larger mortgage may be aided by additional income.
• Evidence of Rental Income
You can utilize this income to meet the requirements for a mortgage if you own additional homes that you rent out. You can be asked to present Schedule E from your taxes, or the bank might just want a copy of the current lease.
Note on Gift
The bank needs a gift letter from the individual who provided you the money when they give you money as a down payment from a friend or family member. The goal is to establish that the money is a gift and not a loan.
•Returned rent or mortgage payments
Ask for a copy of your cancelled rent or mortgage checks as proof that you have made timely payments to your landlord or current mortgage holder. Depending by the bank, you might also be required to provide a two-year residence history.
Decree for Divorce
A copy of your divorce decree, if any, will be requested by the lender. The amount of alimony or child support that must be paid will typically be specified in a divorce decision; these obligations may affect your income or expenses.
Documents relating to default or bankruptcy
Any bankruptcies or foreclosures that have already occurred within the prior seven years must also be revealed throughout the application procedure. For the loan to be approved, the lender must verify that you are no longer liable for any debts stemming from prior bankruptcies or foreclosures.
Step 5: Request a Letter of Preapproval from Your Lender
In order to apply for a mortgage as a first-time home buyer, you should obtain a preapproval letter from any lenders you might be considering working with if you want to buy your new house within the following three months.
An advantage over other potential buyers who don’t have a preapproval is that a preapproval letter demonstrates to realtors and house sellers that you are serious about buying a home and that you have the funds to do so. Preapprovals normally only last three months and necessitate hard inquiries from lenders, which can lower your credit score. If your timetable for purchase is greater than three months, you should postpone this step.
Step 6: Complete mortgage application forms
It’s time to submit a mortgage application when you find a home and make an offer. To compare loan estimates from different lenders, you can submit a mortgage application with each one you are considering.
Numerous financial professionals advise comparing offers from three different lenders to find the best bargain. You are not required to complete the entire mortgage application at this time, according to the Consumer Financial Protection Bureau.
Instead, you can acquire loan estimates by giving each lender the following data: your name, your income, your Social Security number, your address, the sale price of the home you intend to buy, and the loan amount you’re requesting.
Step 7: Examine loan projections and select a lender
Reviewing the loan estimates you receive is the next step in the mortgage application process for a first-time home buyer. Each loan estimate will include information on the loan’s terms, anticipated payments, and closing expenses. If you need help, use the Loan Estimate Explainer from the Consumer Financial Protection Bureau. Pick a lender depending on the best loan offer after going over the estimates.
Making yourself reachable via phone or email is step eight.
Your loan will begin processing as soon as you select a lender. Respond to questions and provide additional information by phone or email. A mortgage typically closes in 30 to 45 days, though this can vary based on the type of loan involved and the current health of the property market.
Comparing the Closing Disclosure and Loan Estimate in Step 9
Your lender must provide you a Closing Disclosure, outlining the precise costs of your mortgage loan, at least three working days before the loan is set to close. Make sure the numbers in the Closing Disclosure match those in the Loan Estimate you got from the Lender. The numbers could have changed in some cases. If so, request clarification from your lender regarding the adjustments.
If your interest rate wasn’t locked, for instance, it might have changed between the time you got your Loan Estimate and the Closing Disclosure. Check the Closing Disclosure’s “Cash to Close” section as well to determine if you must bring any cash to the loan closing. Consult the CFPB’s Closing Disclosure Explainer for assistance if necessary. Check out these 10 self-made millionaire habits that, if imitated, can help you become wealthy.
Attend the mortgage loan closing as the tenth step.
You’ve successfully reached closing day, congrats! Signing the necessary documents to finish the loan and take ownership of your new house is the last stage in the process of applying for a mortgage as a first-time home buyer. You will also pay any remaining fees at this time.