Buying a home is one of the largest purchases you’ll make and although it’s an exciting part of life, it can be a little nerve-racking. There are a number of things to consider when buying your first home including 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, we recommend speaking with one of our Mortgage Representatives. They can explain the process, what items are needed and provide guidance to help you reach your goal of homeownership! Prior to that, it’s best to be prepared by adding these steps to your checklist to ensure the process will go as smoothly as possible.
Know your budget
The first thing to figure out is how much you can afford to spend on a home. 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.
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 homeowners association fee. These costs add up – use our calculator to figure out just how much house you can afford.
Boost your credit score
Having a good credit score is a huge advantage when you apply 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.
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 is part time, they must be at their job for two years in order to use that income as well as 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!
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 what 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!
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 will be paying in interest. 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 Affairs (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 different options, you might find yourself overwhelmed and that’s where we come in to help! Get started today by 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.
