For first time home buyers, applying for a home mortgage can be a daunting task. You will have a lot of requirements, and there are multiple steps that you need to navigate through before you can get a mortgage. A mistake on any of those steps may lead to disapproval, thus, making it vital for you to do everything accurately and precisely.
This article will aim to demystify the process and highlight the important things you should know before you even begin the loan application process.
Know Your Budget
Before you can even take a look at the different mortgage options out there, take a quick look at your finances. You must be able to do some calculations with your income and expenses and arrive at a figure for your desired payment. This would be your monthly amortization. You should be comfortable with paying that amount every single month for the next couple of decades or so. Don’t max out your disposable income because that would leave you without any savings at all. You should also be able to set aside some money for unplanned expenses.
Read Up on the Different Mortgage Options
The 30-year home loan has been the gold standard for mortgages since time immemorial. However, there are so many different mortgage options nowadays. You can choose between different terms. For example, there are now fifteen and twenty year terms. You can even choose your mortgage type, depending on how it treats interest rates. It’s usually a decision between a fixed-rate and an adjustable-rate mortgage. Before you make a decision, you should read up on all the different types of mortgages to know what your options are. Ask some guidance from your financial adviser. You should choose the kind of mortgage that fits your lifestyle and financial situation. It should not be a burden that you cannot manage.
Comprehend the Terms of Your Mortgage Insurance Requirements
Homeowners are required to purchase mortgage insurance if you can only afford to make a low down payment. Depending on your level of down payment, your insurance payments can add up to hundreds or even thousands of dollars every year. That’s money wasted since it won’t go towards gaining you home equity. You might want to wait until you can save up enough cash to be able to make a large down payment so that you don’t have to pay for insurance.
In the event that you really want to buy the house even if you have to shell out for mortgage insurance, you should know the terms of that insurance. Lenders are required to automatically cancel the insurance if your home equity reaches 22%. This is just for standard risk mortgages. If you belong to the high risk category, it might be higher than 22%. Before completing the loan application process, you must be able to come to an agreement on what the requirements would be for the cancellation of the insurance policy.
Shop Around for the Best Mortgage Service Provider
Just like you would when choosing which house to buy, you should also shop around for the mortgage provider that would best suit you. Grab some brochures, visit the websites, and even make an appointment with a loan officer. Gather enough information so that you will be able to compare and contrast each company. While the interest rate they offer is the main consideration, you should always check out the intangibles. Payment channels, customer service, your rapport with the loan officer should also matter.
When shopping around, don’t forget to negotiate for the best interest rate that they can give you. Loan officers will not give you that figure if you don’t bother to ask. A trick is to ask for the daily rate card. It should contain the lowest rates for various mortgage options.
Gather Your Documents
Before you can even begin to apply, you must be able to gather the various documents that the lenders will be requiring you to submit. Some requirements may vary depending on the lender, however there some documents that all of them will require. You can start gathering those documents even if you are still in the process of going through your options. You will be able to save a lot of time especially if you still have to send out for some of the requirements. The idea is that everything should in place once you have made your final decision.
Some of the requirements would include your W-2 and federal tax returns for the last three years, government ID such as social security and driver’s license, the last couple of pay slips and three month statements for your various bank and investment accounts.
Knowing all these things will lead to a faster and less painful loan application. What other advice can you give first time mortgage applicants?