1. Establish Your Credit Score and Credit History
Getting a mortgage, especially for the first time, can be somewhat like applying for a top college: You must have the right combination of experience and grades if you are to be accepted. In the same way a school will look at your GPA as well as extra-curricular activities, a lender will explore your credit history and your financial history. Both of these factors have a major effect on the mortgage rate a lender offers.
Reviewing your credit score and credit report will also help you to learn exactly what the lenders will judge your application on, including your debt-to-income ratio. Keep in mind that the best mortgage lenders will ensure that you borrow only what you can comfortably afford to pay each month. You can find a host of mortgage calculators online to help you find out if the mortgage payments are realistic.
Overall, there is no need to panic if there are aspects of your credit history that are less than ideal: with enough time and determination, you can fix any credit problems and make yourself a more attractive proposition to the best mortgage lenders.
2. Ask if There Are Special Programs for First-time Buyers
Most of the best mortgage lenders have partnerships with state agencies, which allow them to offer you special rate discounts, assistance with down payments and educational resources if you are buying a home for the first time. Some programs provide affordable grants and loan options for government employees, veterans or individuals with student loans. Combining these benefits can make buying a home for the first time as affordable as possible.
While these first-time buyer programs are typically advertised by the state agencies, the actual mortgages are handled by lenders such as banks or credit unions. The eligibility requirements for these special programs tend to vary by state, location of the property and the lender. Not all lenders offer these programs, so you will have to ask.
3. Ask the Lender if They Offer Government-backed Mortgages
State agencies are not the only places where you can find special mortgage options. There are also loans which are offered by the U.S. Department of Veterans Affairs, the Federal Housing Administration and the U.S. Department of Agriculture. These home loans are easier to qualify for than traditional mortgages since there are more relaxed requirements with regard to your income and credit history and they may also have lower down payments.
The Veterans Affairs and Department of Agriculture loans are often given with no down payment required. The Federal Housing Administration mortgages need as little as 3.5% down. The minimum credit scores for these programs are usually lower than those required for conventional home loans.
You should note that not all mortgage lenders offer government-backed mortgage plans, while some have limited options, so you will need to look at availability when comparing different mortgage lenders.
4. Compare the Interest Rates and Other Mortgage Features
Comparing the annual percentage rates (APRs) from different mortgage lenders will provide you with a clear picture of what you will pay back over the course of the mortgage. Other features that you need to look at when comparison shopping among different mortgage lenders include application process, appraisal, loan origination fees and title, all of which have an effect on the closing costs and which vary from one lender to the next.
When a loan officer rattles off these terms and numbers at a fast pace, you should pay close attention and ask questions, not just nod and smile. When it comes to mortgage terms, the devil is in the details, which could be endless pages of small print. Make sure that you have all the facts and ask for clarification of anything that is unclear.
5. Get Preapproval from the Mortgage Lender
Preapproval is proof that a mortgage lender is willing to give you a home loan and is a clear signal to the home seller that your offer is one that they can rely on. Preapproval will also give you a fairly good idea of what interest rate and repayment terms you can expect.
When you are looking for a lender, you should compare their preapproval options. The preapproval process varies widely between lenders, with some allowing you to upload your documents digitally, while others may require a phone call or a visit to their offices to deliver the paperwork in person.