When you’re buying your first home, trying to decide who you can trust for your mortgage and how to get the best loan option for you can certainly be intimidating. But now it doesn’t need to be – we’ve mapped out the first five steps you need to take when applying for your first mortgage.
1. Choosing a Mortgage
First step is to do some research on the different mortgage types available and what each offer. Consider your lifestyle and the purpose of your new house. Do you plan on staying in your home for your entire life? Then a 30-year mortgage may be right for you. Do you want your monthly payments to remain the same throughout the length of the loan? Then you’ll probably want a fixed mortgage.
2. Finding a Low Mortgage Price
Next, you need to find yourself the best mortgage deal. Most people assume this means finding a low rate, but actually it involves finding a low rate AND low fees. That’s because the fees that are included in your home loan (origination fees, appraisal fees, title fees, etc.) can really add up by the time you close on your mortgage.
Seem like a lot of work? It’s not – simply pay attention to the Annual Percentage Rate or APR that a company is offering. APR is a standardized way to compare different loans that included both the interest rate AND fees charged by a lender. The lower the APR, the lower your fees and rate will be!
3. Choosing A Credible Company
Once you find a few mortgage lenders who have a low APR, you need to next ask your friends and family their opinions about mortgage companies or banks they used, and their experience with them. Create a short list from their recommendations and call each of them, checking their credentials, making sure they have up-to-date licenses and of course, checking out the rates they can provide you.
4. Your Credit Score
Now, many things go into determining how low of a rate a lender can give you, but the primary determinants of your home loan rate is your credit score. So it’s important to check it and improve it (if necessary) before applying for your home loan. Scores can range from 300 to 850 and the higher your credit score is, the more attractive you are to mortgage lenders.
5. Knowing How Much You Can Afford To Buy
And lastly, once you know which loan is right for you, found a mortgage company that’s credible and offers you the lowest price, and you’ve got a great credit score ready, it’s time for you to get qualified for your mortgage. A general rule of thumb to keep in mind is that you can afford three times your gross annual income on a home loan. While this calculation is very rough, it’s a good place to start so you know what how much you can borrow before shopping around for a house. You don’t want to over extend yourself and take out a mortgage that busts your monthly budget.
And that’s it! Once your mortgage lender has qualified you for a mortgage, you’re one step closer to owning your dream home! To learn more about the mortgage process, download our free step-by-step guide for obtaining your first mortgage.
Written by Nicole Gates, Guaranteed Rate Blogger