5 Things to Know About Mortgage Finance Homebuying

Preparing to buy a home for the first time can be overwhelming – and knowing what steps to put in place before you get started is something many homebuying hopefuls don’t know much about. And that’s okay, because we’ve compiled a list of the 5 things you need to know about finance and homebuying!

1. Perfect Credit Is Not Required

First and foremost, make sure you study up on what credit is, how to strengthen your credit score, and maintain a healthy credit score over time by checking in with each major credit reporting agencies each year. You can get a free copy of your credit report from the three major reporting agencies—Experian, Equifax, and TransUnion—once per year.

While, yes, you must have good credit to qualify for a mortgage, your credit does not have to be absolutely perfect. This is why it’s important to stay up to date on your credit score and always take steps to mitigate risks for a ding on your credit report.

If your credit isn’t perfect, do not stress too much. There are several mortgage programs designed to make home ownership attainable for first-time homebuyers who may be  on a tighter budget, or potentially carry a lower score.

1. Determine Your Budget

Setting a realistic budget is vital in the homebuying process. A reputable mortgage lender will want to ensure that their borrowers (that’s you!) don’t borrow too much.

After looking at income and your ability to repay each month, a mortgage banker can help you determine a responsible payment amount in relation to your income. After all, it’s not just the monthly mortgage amount that you have to consider. There is so much more that must be accounted for in your budget:

  • Mortgage principle and interest

  • Property taxes and fees (such as an HOA?)

  • Homeowner and mortgage insurances

  • Monthly utilities (electricity, water, gas, cable, internet, streaming services, etc.)

  • Planned and unforeseen repair costs

Another big thought point is the down payment. Figuring out how much you are able to put down upfront will affect how much your monthly payments are. Your mortgage banker can help you figure out the numbers if you have a tough time!

2. Explore Your Mortgage Options

The number of options available to a buyer can seem pretty overwhelming, especially if it’s your first time buying. There is a variety of choices available to you based on the size of the loan you are looking for, the terms of the loan (length of time, which is generally 15 or 30 years, but can vary), the interest rate and type, and whether you are participating in any specific program.

Some things to consider would also be:

  • Loan Terms: While a shorter-term loan may have a higher monthly payment, the interest rates tend to be lower. Whereas longer-term loans will usually be accompanied by lowers monthly mortgage payments but higher interest rates (and a higher total cost).

  • Types of Interest Rates: Terms you are bound to hear include “Fixed” or “Adjustable.” With fixed loans being locked in rates that don’t change over the lifespan of the loan, they are considered lower risk. Adjustable rates can increase or decrease based on the market, so they are usually deemed riskier. Different rate types make sense for different borrowers.

  • Types of Loans: Most mortgages fall into the Conventional Loan category. However, a first-time buyer, or a buyer who may be in an unusual situation, can qualify for a special mortgage. The FHA, U.S. Department of Agriculture, the U.S. Department of Veteran Affairs, and even some state governments offer what is classified as a special loan. This is certainly an area to explore if you are a first-time homebuyer or believe you could qualify for a program!

3. Learn the Different Between Pre-Qualified and Pre-Approved

Yes. They both sound pretty similar, we know. But they are actually quite different when it comes to being ready to shop. When you are pre-qualified, you have already provided the lender with all of the components they need to determine your financial health. From credit, to debt, to income, to assets, and everything in between, they will review your financial standing and records and provide an estimate of the amount you can borrow. Then you’re ready to start browsing!

On the flip side, a pre-approval is a definitive, concrete answer. And it’s the next step after pre-qualification. Expect to dive deeper into financials including loan types, interest rates, and so on – that way you are ready to go once you find the home of your dreams. You’ve already gotten most of the financial legwork out of the way. That’s why a pre-approval will carry a lot more authority when you go to put in an offer, especially in a competitive buying market.

4. Find the Right Lender for You

Different lenders have their own sets of strengths, and some with weaknesses, so it is important to do your research and find the lender and mortgage banker who is right for you and your family’s needs. Often times your real estate agent will have a group they trust working with, which can come with advantages. Another great idea is to ask friends and family members for personal recommendations and reviews of recent experiences with local mortgage professionals. Finding a lender and mortgage banker who meets your specific story best can make all the difference in having either a stressful or seamless home loan process!

If you have made it this far, then you are already taking steps in the right direction to make sure you’re well-educated and prepared when the time comes to find your first (or next!) home!