First time home buyers will find that the home buying process is never the same for any two people. Not only does this process depend on your local market and the type of home you are looking for, but your individual qualifications as a buyer as well. This article will serve as a first time home buyer guide to help you understand the factors you should consider when applying for your first mortgage.
Once you have chosen the right mortgage lender, the first step is to get pre-approved for a mortgage before you begin looking for a house. The pre-approval process will tell you what you can reasonably afford to pay for a home and give you clout when dealing with sellers, as they know your financing is secured. This process requires listing your household income as well as your expenses in order to calculate a mortgage payment range that you can afford.
Fixed vs. Adjustable Rates
A trusted lender can help you determine whether a fixed or adjustable mortgage rate is right for you. A fixed rate remains the same throughout the lifetime of your mortgage, even as the market changes. A variable or adjustable rate fluctuates based on market activity, which could work to your benefit if you plan to refinance your mortgage within a few years of buying a home. Work with your lender to determine which type of rate is right for your particular situation.
Your lender will help you determine how much you can afford to pay for a mortgage each month based on your income as well as your expenses. Calculating your payments based on income alone is ineffective since it may leave you unable to make your mortgage payment if your expenses fluctuate regularly. A responsible lender will encourage you to leave some room for changing expenses when you calculate an appropriate mortgage rate.
Your credit rating has a significant effect on the type of interest rates and mortgage repayment plan options a lender will offer you. Most often, the higher your credit score, the lower your interest rate will be. If a low credit rating prevents you from getting a lower interest rate or from getting approved for a mortgage at all, it may benefit you to improve your rating and re-apply once it is higher. You can improve your credit rating by clearing up previous credit issues, keeping the balances on your consumer credit cards below one-third of your total available credit, and limiting yourself to one new line of credit every six months.
Education is the most important part of the home buying process for first time home buyers. By understanding how this industry works and learning about your own qualifications as a home buyer, you can increase your chances at getting a home that is right for you at an affordable rate. For more first time home buyer and mortgage education, download our free eBook now!