First-Time Home Buyers
The process of buying your first house is an exciting one, but it is also very daunting. It is more than likely going to be the biggest financial commitment you have made up to that point in your life.
There will often be hundreds of thousands of dollars in debt that you need in order to purchase the home, Therefore, you want to take the time that is needed in order to find the ideal mortgage lenders for your needs as a first-time homebuyer.
Buying a Home for the First Time Explained
There are many different variables associated with buying a house for the first time. As you do not have direct experience buying a house in the past, you will need to consider a lot of different variables for the first time.
Naturally, you will need to figure out in what region you want to live and what you will be able to afford. Then you need to prepare your credit in order to get as good of an interest rate on your mortgage as possible. You will need to have enough savings in order to make the down payment.
Once you get pre-approval from a mortgage broker, you can start looking around at potential homes to purchase, You need to compare the different lenders to see which one offers the most reasonable terms for your situation. There are many top-tier mortgage lenders that look after first-time buyers, so it is about narrowing down the different options.
Online mortgage lenders
Types of Mortgages
If you are a first-time home buyer, then there are usually going to be two major types of mortgages that you will have available for you to consider. These will be loans that are government-backed and those that are conventional loans. If you go for a government-backed loan, this means that the government ensures it and it takes the risk away from the lender in case there is a default on this loan by the borrower.
Naturally, a conventional type of loan is going to carry more risk for the lender as the government does not ensure this loan. Therefore, conventional mortgages will often have larger interest rates, fees, and even down payments. Conventional loans are very straightforward as they will be nice and flexible for first-time buyers. However, there are a few different types of government-backed mortgages that you might need to be aware of:
VA Loans
VA loans are dedicated usually to people who are a part of the military, as well as their families. There are numerous advantages to this type of mortgage, including having a $0 down payment and no PMI once the eligibility requirements have been met.
HUD/FHA Loans
There are loans whereby the borrower is required to make a down payment of at least 3.5% and have a FICO score of 580 or greater. You can still get this loan type if your FICO score is below this level, but the minimum required down payment is going to be larger.
USDA Loans
USDA loans are focused on people who are looking to buy a home in a rural area and these will be guaranteed by the US Department of Agriculture (USDA). People can apply with low incomes and still get the ability to borrow funds to buy, build, or renovate a home in certain areas of the country. All of the closing costs and mortgage expenses will be combined into the loan in order to keep everything neat and tidy.
How to get a first-time home buyer mortgage and mortgage rates
Get pre-approval or pre-qualification
If you get pre-approval from a lender for a mortgage, you are able to get a letter that will often include the loan amount. While this letter does not guarantee you a mortgage because it is based on certain assumptions, it does allow you to start shopping around for potential homes. This letter can be shown to sellers to show that you have access to the funds in principle, being a form of good faith.
If you are chosen to be the buyer of the house, then it is likely you will then have access to these funds. Even if you get this letter, it does not mean that you are going to be tied down to going with this lender. You are still able to compare different lenders and get access to the most suitable rates possible.
Getting the necessary documents together
When you make an offer on a home and it is accepted, then you need to get all of the important documents together and present them to the lender. Some of these forms include:
- Recent pay stubs and W-2 forms
- 1099s for business owners
- Information regarding outlying debts
- List of different assets
- Tax returns from the most recent two years
Good Faith Estimate and Lending Disclosure
Inside of three days of getting approval for a mortgage loan, you will get a Good Faith Estimate (GFE) from the lender which will showcase all of the costs associated with the loan. Then the Truth in Lending disclosure will showcase info about the costs you need to pay, as well as the other key terms of this loan.
Choosing a Mortgage Lender
There are many different ways in which you can get a mortgage these days as a first-time buyer. The likes of banks, credit unions, and online lenders will all cater to your needs. It is important that you know what type of mortgage is most suited to your situation before you start shopping around.
You also want to make sure that you are only looking at lenders that have plenty of experience in the sector, a good track record, as well as full transparency when it comes to fees. There will also be different requirements when it comes to different lenders which is something else that has to be factored into the selection process.
Traditional Mortgage Lenders vs Online Lenders
Traditionally, people would get a mortgage from a bank and have to submit documents in person. However, online lenders allow you to get a much more efficient experience by applying completely online. This allows you to also shop around in a much easier manner than if you were looking to deal with physical banking branches.
Therefore, you can often get the soundest deal possible for your mortgage. This is especially important as a first-time homebuyer, as you might be looking to minimize your outgoings as much as possible.
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