Purchasing your first home is a significant milestone, filled with excitement and a few uncertainties. As a first-time home buyer, it’s crucial to make informed decisions and ensure a smooth process. Below, we will address some common queries frequently asked by first-time home buyers.
- Understanding Mortgages: A mortgage is an agreement between you and a lender that enables you to borrow funds for buying or refinancing a home. It grants the lender the right to take ownership of the property if you fail to repay the borrowed money.
- Pre-Qualification vs. Pre-Approval: Pre-qualification is an informal process done over the phone or internet, providing a rough estimate of your borrowing capacity with no obligation or paperwork. Pre-approval, on the other hand, is a formal commitment from the lender. It involves collecting all required documents to verify your income, assets, and credit, giving you a clear idea of what you can afford.
- Securing a Loan: The initial step is completing a Loan Application and providing necessary documentation to verify the application details. This typically includes pay stubs, W2 forms or tax returns, recent bank statements, and any additional documents requested by the underwriter.
- Checking Credit Score: There are several ways to obtain a copy of your credit report. You can request a free copy from each of the three major credit reporting agencies.
- Responsibilities During the Lending Process: It’s important to maintain stable financial circumstances throughout the loan process. Here are some guidelines to follow:
- Avoid changing jobs, becoming self-employed, or quitting your job.
- Refrain from acquiring additional debt, such as cars, boats, jewelry, furniture, etc.
- Keep credit card charges minimal and ensure timely payments.
- Do not spend the money reserved for closing.
- Avoid applying for new loans.
- Refrain from changing bank accounts or making large/unusual deposits.
- Do not agree to co-sign or co-borrow with anyone during the loan process.
- Locking in a Rate: When you “lock” your loan rate, it means guaranteeing a specific interest rate for the duration of the lock period. This protects you from potential interest rate fluctuations.
- Understanding Loan-to-Value: Loan-to-value (LTV) is the percentage of the borrowed amount compared to the purchase price, indicating the amount financed by the lender.
- Components of Monthly Mortgage Payment: A monthly mortgage payment typically includes five items: principal, interest, property taxes, homeowners’ insurance, and mortgage insurance.
- Mortgage Insurance: Mortgage insurance is required if your down payment is less than 20%. It protects the lender in case of mortgage payment default. There are various mortgage insurance options available to suit your needs.
- What to Expect on Closing Day: Ensure you have all necessary documents in order. During the closing, you will sign multiple papers, but they will be explained to you. Arriving on time is crucial, as you will be guided through the process from there.
