Buying a home is still an excellent investment strategy, even in today's red-hot real estate market. Due to continued low home mortgage interest rates, many first-time homebuyers are able to qualify for loans with monthly payments comparable to their current rent payments.
Before taking on a home mortgage, however, there are four critical preparatory actions that first-time homebuyers should consider taking to ensure that their purchase experience will be a smooth, stress-free process.
Live within a budget
Learning to control spending and live within the constraints of a budget is the best way to fully understand money habits and set productive goals for achieving financial success. Families who budget well are better situated to ensure that monthly bills are made on time and necessary expenses are covered. When it is time to purchase a first home, families who have been living within their budget typically also have higher FICO scores due to their past history of timely debt and utility payments.
Pay down existing debt
When applying for a home mortgage, lenders and their underwriting specialists will look closely at your household's total income and compare it with the amount of existing debt you have taken on. If this debt-to-income (DTI) ratio is too high, your mortgage application may be denied or assigned to a high-risk category that will require you to pay higher interest rates so it makes sense to actively reduce existing debt as quickly as possible.
Stabilize your income
It is also wise to ensure that household incomes are stable before submitting an application for a home loan. Mortgage lenders typically verify income details including place of employment, salary, and length of time at your current employer during the initial approval process and again as part of final approval before closing the loan.
Prospective borrowers who will be making any type of career changes will want to do so several months in advance of applying for a loan. Most lenders do, however, tend to look favorably toward job changes that equal or increase income as long as the new job is within the same career field.
Get qualified advice
The final step in preparing to apply for a first home loan is to locate and begin meeting with a full-service mortgage lender in your area. These financial professionals can help prospective borrowers review their credit reports, bank records, and other financial documentation to ensure that any potential qualification issues can be addressed before the formal application process begins. In addition, full-service mortgage lenders have an advantage over banks and credit unions because they are better situated to shop available mortgages from a broader range of lenders.Share
24 May 2021
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