Preparing to Get a First Mortgage

Proper communication between buyer and lender will make home buying a successful one

Buying your own home can be a daunting task particularly, if you are a new home buyer. However, if it’s done in the right way, then it can be a rewarding experience for a secured future. It requires a lot of time and effort to collect the necessary details of the home that you’re planning to purchase. The process of home buying begins with deciding a price range that you can afford and prove to be successful if you’re able to make the down payment for it. Other factors that the lender will take into consideration before approving your home loan are your credit score, debt to income ratio, and employment record. Thus, if you can satisfy the requirement of the lender, you will be able to obtain your first mortgage and buy your dream abode.

The necessary down payment

Every one wants to purchase their own home and protect the life of their loved ones. However, not all can make this dream come true. The reason behind this is insufficient funds due to which they require taking out a mortgage. The home buyer has to keep in mind that he’ll have to make at least a 20 percent down payment on the present value of the home he wants to buy. Only then, the lender will approve their request. However, if you find that it’s not possible to make the 20 percent down payment, then you’ll have to buy Private Mortgage Insurance (PMI) and give it to your lender. Since your lender considers you to be a risky borrower without the necessary down payment, PMI will give him the assurance that he’ll get back the loan amount if, by chance, you default in repaying the loan.

The need of a good credit score

The lenders want you to have a good credit score when you approach them for obtaining a loan. As such, it’s vitally important that you maintain good credit before you go to your lender for a home loan. When you’ve good credit, the lender will agree to approve your loan request and they’ll offer you the loan at a suitable interest rate. But, if your credit score is bad, you should avoid requesting your lender for loan approval. This is because there are high chances that the lender will reject your loan proposal when you’ve bad credit. Rather, you should take immediate steps to improve your credit score. You may find a  few lenders who will provide you a loan even when your credit score is worse. In such a case, they’ll charge extremely high interest on your home loan. As you’re a new home buyer, you may not be able to afford such high rate of interest on your mortgage loan.

The importance of debt to income ratio

Mortgage lenders want all your debt payments such as credit card dues, student loans, car loans and mortgage payments to be not more than 36 percent of your gross monthly income. This is because the more debt you may have, the more will be the chances that you will not be able to repay your additional dues. Before you apply for a mortgage, your debt to income or DTI ratio is the first thing that the creditor will assess to give you credit. Your credit score will enable the creditor to know how you’ve managed your finances in the past and your debt to income indicates if you’re eligible for getting a new loan. As such, you should inform your creditor about your debt to income ratio so that they may approve your home loan request. Your debt to income ratio is analyzed by dividing your total debt payment by your total monthly income. This will enable you to find out the mortgage loan you can afford to take out for buying a home.

The requirement of your job history

Before approving your mortgage loan, the lender will take a close look at your employment record. So, if you’re holding the same job for a minimum of two years or more than that, then this will surely appeal to your lender. As such, you should try not to change jobs very frequently. Moreover, the lenders believe some jobs and income levels to be much more secured than the others. For example, if you’re running your own business or earning on a commission basis, then the lender will ask you about your financial details such as personal and business tax returns. There are also some borrowers who apply with the stated income status if they are not with the same company for two years or their position has changed. So, if your job is stable and you’re making a fixed income every month, the lender will agree to approve your mortgage loan. Thus, you can accomplish the dream of having your own home.

A first-time home buyer has several things to take into consideration when he decides to buy his own home. Such will be your situation if you too, are thinking to buy your home. Just like every home buyer has certain desires in mind about his home, similarly the mortgage lender will have some requirements that the home buyer should fulfill. So, if both of them can satisfy each other’s requirement, then the home buying process will definitely turn out to be a successful one.

This article has been contributed by Sam Stokdale, a financial writer specializing in mortgage. Immersing himself with the financial sector, he has covered topics including real estate investment, mortgage refinancing, lending and borrowing, managing finances and credit advice.