Buying a home is one of the largest purchases you’ll make and although it’s an exciting part of life, it can definitely be overwhelming. There are a number of things you should consider before you start the process like your price range, the style of housing, where you want to live, and even how the economy is affecting the housing market.
If you’re not sure where to start, meet with one of our Mortgage Representatives. They’re available to explain the home buying process, what important items are needed and guide you from application to closing! First, use this checklist to make sure you’re prepared so the process can go as smoothly as possible.
1. Figure out How Much House you can Afford
The first thing to figure out is how much you can afford to spend on a home so you can narrow down your home search. Most lenders will look at your debt-to-income (DTI) ratio, which is the percentage of your income that you’re spending each month to pay your debts such as car loans, student loans, credit cards, etc. “Typically, we like to see the total debt vs. the total income somewhere around 43% - 45% or preferably lower” said Amy Block, Mortgage Representative, Lakeland Bank. If you need help determining what price range is affordable for your income, you can use this calculator to estimate your monthly mortgage payment.
2. Save for a Down Payment
The next thing to consider is how much money you can put towards a down payment. Keep in mind that Private Mortgage Insurance, or PMI, is required if you don't have a 20% down payment. You may also need to set aside money to cover home-owner insurance, closing costs, property taxes, and in some cases, a homeowner’s association fee. These costs add up – use our calculator to figure out just how much house you can afford.
3. Improve your Credit Score
Having a good credit score is a huge advantage when applying for a mortgage. It may help you qualify for a better interest rate which could save you thousands of dollars over the life of your loan. By using a tool like Credit Sense, you can easily monitor your credit score, receive a full credit report and get tips to improve your score like paying off debt and paying all of your bills on time. Now that you have a better sense of what you can afford and why your credit score is important, it's time to get your paperwork in order.
4. Compile your Paperwork
Once you have reviewed what costs are associated with purchasing a house and have determined your budget, it's time to pull together the financial documents you’ll need to provide to a lender in order to apply for a home loan. As you may have guessed, it takes a little more than your word to prove you are financially capable of buying a home!
Job stability is another important factor. “We like to see a two-year history. If someone works part-time, they must be at their job for two years in order to use that income as well as a bonus, commission, overtime, etc.” said Block. Some of the most common items you'll want to have on hand when applying for a mortgage are:
- W2 forms – last two years
- Pay stubs – last two to three years
- Tax returns
- Bank statements
- Credit history
Once you've compiled everything, you can go back to your lender to discuss which mortgage option is right for you!
5. Get Pre-qualified
When you get pre-qualified for a mortgage, you are able to prove you are a credible buyer to the seller and that can help you stand out in a competitive market. Speak with one of our mortgage representatives to help you get pre-qualified for a loan based on which one is right for you. Request a consultation today before you begin your home search. Then, start the exciting process of finding the house of your dreams!
6. Choosing the Right Mortgage
First-time homebuyers have a variety of different options when it comes to loan types, and it can be difficult to decide which one is financially right for you. One option is a fixed-rate loan, an attractive loan option for borrowers who like to know exactly what their mortgage payment will be each month and how much they’ll ultimately pay in interest over time. A fixed rate takes out the uncertainty of fluctuating interest rates and shields you from the unpredictability of inflation. Another option is an adjustable-rate loan, which often starts you off at a lower interest rate to begin with. This can be advantageous for first-time home buyers because it leaves extra funds to spend on possible home repairs or furnishing your home. Keep in mind, adjustable-rate loans are subject to change based on market fluctuations, but if you plan to refinance or sell within a couple of years, it may be worth considering. Use this calculator to help decide between a fixed and an adjustable-rate mortgage.
As a first-time homebuyer, you may be eligible for additional benefits through first-time homebuyer programs that are available. Speak to a mortgage representative for more information about each of these loans and weigh the pros and cons.
- Welcome Home Loan
This mortgage is a low-down payment option for a first-time homebuyer who may not be able to make a large down payment, but would otherwise qualify for a mortgage.
- HomeReady® Mortgage
This is an affordable, low-down payment option designed for creditworthy, low-to-moderate income borrowers, with expanded eligibility for financing homes in low-income communities.
- Federal Housing Administration (FHA) Mortgage
An FHA loan is a mortgage loan that is insured by the US Federal Housing Administration and provided by an FHA-approved lender. FHA loans are available in a variety of fixed-rate and adjustable-rate loans and offer low-down payment options.
- Subsidy Assist
This program entails affordable housing assistance that provides closing costs and/or down payment assistance to eligible borrowers. Eligibility is based on the property’s census tract and Lakeland Bank’s assessment area for low-and moderate-income tracts as well as the borrower’s household income.
Veterans Administration (VA) Loan
Guaranteed by the U.S. Department of Veterans Affairs, a VA loan is designed to help veterans and their families secure home loans. The government doesn’t actually issue these loans; they establish rules to qualify applicants and they insure them against default. The loans offer up to 100% financing. VA loans offer benefits that other loans do not, including no down payment unless required by the lender and no monthly insurance premium.
Every journey to the front door is unique and at Lakeland Bank, we offer many options to find the best solution for you. With so many options to consider, you may find yourself overwhelmed and that’s where we come in to help! Get started today by downloading our guide to home buying, requesting a consultation or getting prequalified before you begin your home search. Then, start the exciting process of finding the house of your dreams! Already found yours? Apply now! To learn more, check out our other mortgages and home lending blogs.