Do you plan on buying a house to settle in with your partner? While the new American Dream is different and more in-the-moment, many people still want a house. Nothing beats having land and a house for yourself and your family, after all.
The pandemic also made everyone realize how important it is to have a home with a yard and fence. Whatever your reason for buying a house, you must know that it’s not an easy process. The first-time home buyer will face many challenges, including getting your mortgage approved.
Below, we’ve got a list of tips that can help you get your mortgage granted sooner. Keep reading to learn what you can do to get your mortgage approved.
1. A First-Time Home Buyer Must Review His or Her Credit Score
Mortgage lenders will always check your credit score and favor high scores. Before you make a move on a mortgage, make sure your first time homebuyer credit score is good. Pulling out your credit record and ordering your credit score only takes a few minutes.
Never assume that your credit score is high enough to qualify. You’d always want to take all the necessary steps to ensure that no surprises come your way. Review and clean it up when your credit score and history comes back to you.
2. Pay Your Debts and Avoid New Ones
Debt is one of the most influential factors that affect your mortgage approval. It’s also a reason millennials have a harder time getting homeownership. Thus, it’s always a good and smart habit to pay your bills on time.
Remember that missed payments count against you and can lower your credit score. If you have defaults, they’ll count against you for a year and stay on your file longer. Even one missed mobile phone payment can stop you from getting a mortgage.
You don’t need to pay down all your balances on your credit cards to get a mortgage loan. Yet, it’s still better that you owe less to creditors and lenders. Mortgage lenders assess your debt-to-income ratio and factor in all the money that will get counted out of that income.
The best solution is to develop a habit of being a smart and frugal consumer.
3. Correct Credit Errors ASAP
One more way to improve your credit score is to correct all credit errors as soon as you find them. It’s your credit, so it’s your right to have it corrected. This is another reason for you to keep an eye on your credit score and credit history often.
4. Find a Lender Who Will Trust You
Mortgage shopping can be tiring, so most people settle on the first lender they talk to. As a first-time homebuyer, you’d want to talk to more than one or three lenders. Otherwise, you won’t see how different the terms are for each company.
Try to talk to a variety of mortgage lenders and brokers on the same day. Get their quotes on those days. This will get you a more accurate comparison since the market rate changes daily.
Three lenders are the minimum, so try to communicate with more than that if you can. Don’t forget to include a local, independent mortgage broker. An experienced broker can shop wholesale lenders for you.
5. Cut Back on Spending Before You Apply
As we mentioned, mortgage lenders will look at your statements and credit scores. One way to give them a good impression is to show them that you can live a frugal life. Try to tighten your belt for a few months before you apply, especially if you want to apply for a large mortgage.
Doing this and making it a habit can help out later, especially once you get your mortgage approved. You can spend the money instead on the cost of moving. The money you didn’t spend in the months before the application can also be the funds for unexpected costs.
If you want to know how much you’re going to spend on your mortgage, use a mortgage calculator. It’s a great tool for first-time home buyers to find out what kind of mortgage works best for them. Learn more here about mortgage calculators and how to handle your mortgages.
6. Be Wary of the Joint Credit of an Ex
Start cutting yourself off if you were in a relationship where you linked your finances. An ex’s financial state can ruin your chances of getting first time homebuyer grants. Your ex may have an issue with lay payments or misdemeanor, and those records can affect you.
Sit down and write to the credit agency or bank for notice of “disassociation.” Even if your ex has a good credit history now, you’d still want to de-link yourself. Otherwise, you risk issues in the future if they miss their payments.
7. Know What You Can Afford
In the US, the average first-time home buyer owed around $190,000 in 2016. This is the average FHA mortgage, which is more popular to first-time buyers because of the smaller down payments. With that cost in mind, ask yourself if you’re ready to buy the dream house you’ve always wanted.
Step back and look at the bigger picture of your finances and income. Be realistic about the house that you want to buy and your current financial situation. Don’t buy a mortgage with a 20% down payment if you can’t afford it. Also, remember that the larger your down payment, the more options you have.
8. Close Inactive and Old Accounts
If you’ve stopped using an account, close it. Otherwise, you’ll encounter trouble with fraud. You may also have to update your details on the account, which can take time.
Yet, there is an exception, especially if you’re applying for a mortgage. Mortgage lenders want an older and stable credit record. If your old credit account has a good credit score, use it rather than your newer account.
Get the House You Want When You Get Your Mortgage Approved
Living in a house that’s yours is a good life goal. However, you want to be smart, especially as a first-time home buyer. Reading these tips puts you one step closer to that goal, as well.
Do you want to read on other similar topics like first-time homebuyer tax credit? Check out our other guides for content on topics like this one and more.