2022 is shaping up to be another strong year for housing, as historically low interest rates continue, making it the perfect time for first-time buyers to enter the world of homeownership. Finding the home of your dreams is the exciting part, but the mortgage process can seem complicated – especially for first-time borrowers.
There are a few things you can do now to make the journey easier. Here are some tips to help set you up for success to buy your first house.
Know Your Credit Score
Lenders use your credit score as a barometer on your ability to pay your monthly bills now, as well as being able to make your mortgage payments in the future. Reviewing your credit score early in the process is key to successfully getting a mortgage. Be sure and check your report for errors. You can obtain a free credit report once a year for each of the three major credit reporting agencies: TransUnion, Equifax, and Experian. Visit annualcreditreport.com to get your reports.
Don’t worry, generally speaking when you check your own credit report, there is no negative impact to your credit rating. This is called a soft inquiry. When a lender checks it, it’s known as a hard inquiry, and can have a minimal effect on your rating.
Understand your Debt-to-Income Ratio
In addition to your credit report, lenders will want to know your debt-to-income ratio. This gives them a picture of your total monthly debts, including the estimated mortgage payment. As a rule of thumb, mortgage should not be more than 43 percent of your gross monthly income. It’s important to be realistic about how much house you can afford without overextending yourself.
Once your credit score is in check, the next step is to get pre-approved. You want to do this before you ever start looking at houses. Getting pre-approved for a home loan gives you an idea of how much home you can afford. There’s nothing worse than finding the house of your dreams, only to find out during the mortgage process it’s not in your budget. Not to mention, it can give you an advantage over other buyers who may not be pre-qualified – which is especially important in today’s competitive housing market. So, make pre-approval a priority.
Save for the Down Payment
When you are able to put down a significant down payment, this tells lenders you are serious about the investment. Loan programs require a varying amount of down payments – find specifics on our programs page. In the eyes of the lender, the more you put down, the less risky the loan is.
Ready to learn more?
Buying your first home is a big step and a long-term commitment. Take the time to ensure your finances are in order before you begin the mortgage approval process. Let us help you get started by prequalifying for your mortgage loan. Luxury Mortgage can help borrowers get prequalified in minutes so you’ll know how much house you can afford. Connect with one of our licensed mortgage consultants today to get started!
Call us today: (888) 379-0303
Four Landmark Sq. Suite 300
Stamford, CT 06901