A Guide to Making Your First Mortgage as Easy as A-B-C!

Back-to-school season is right around the corner and eager minds are preparing for their upcoming classes. In the spirit of the upcoming school year, we’re doing our part to educate first-time home buyers by offering a little study guide on one of their most daunting subjects… mortgages.

Similar to the excitement that accompanies heading off to college for the first time, the excitement that surrounds your first home purchase can be hard to contain. However, with that first home purchase usually comes that first home mortgage. So, while back-to-school shoppers are stocking up on pencils, paper and dorm essentials, we’re pulling out the textbooks to help first-time home buyers brush up on their first mortgage ABCs:

A is for Mortgage Approval

Before first-time home buyers even begin to scour the market for a home that fulfills all of their needs and wants, it is a good idea to shop around for a lender and gain mortgage pre-approval… for a few reasons. For starters, first-time home buyers may have no idea of how much home they’re able to afford. Gaining pre-approval will give them a starting point in their search. Secondly, any seller is bound to consider a buyer more serious if they’ve already sought out mortgage pre-approval.

In the process of gaining that pre-approval, a buyer may visit more than one lender. They may get better terms from a bank they’ve done business with for years or they may find that a new lender can offer them a better deal. In any case, it is always a good idea to shop around before selecting a lender you intend to pay for the next 30 or so years.

B is for Better Banking

On the road to your first mortgage, practicing good banking habits is a must as you’ll undoubtedly be required to show and explain your most recent bank statements. Even before you seek mortgage approval, you need to get into the habit of some better banking practices as any lender will require full disclosure when it comes to income and spending. Not only will they want to see money in your bank account, but they’ll also want to know how it got there and they’ll want to make sure it is going to stay there from the down payment throughout the entire closing process.

How much money does a first-time buyer need to have in the bank? Well, depending on the type of mortgage, a down payment may be anywhere between 3% and 20% of a home’s price. If you’ve already started looking at homes, you may decide that you need to start saving NOW!

C is for Calculating Credit

Not only are banking statements required for a mortgage, but so are credit statements. Of course, great credit is preferred and can help to lower your interest rate; but, so-so credit does not mean that your home ownership dreams are over. Before you even meet with a lender, obtain a copy of your credit report. That way you will not be surprised by any old, forgotten-about credit that may show up.

To help build up your credit score before applying for a mortgage, be sure to make your repayments on time… for a long time. This also will help to keep your debt-to-income ratio down, which will contribute to your chances at mortgage approval. Finally, it is actually important to not use your credit to make any big purchases while you’re going through the mortgage approval process. Doing so could hurt your chances at final mortgage approval. For the same reason, you should not open any new lines of credit during the approval process. 

For first-time home buyers and even for seasoned buyers who simply haven’t gone through the mortgage process in a long time, seeking a mortgage can be a confusing and anxiety-ridden time. But, with a little preparation, your first mortgage process can be as easy as A-B-C!

This post is sponsored by PA Preferred Mortgage:

Pennsylvania Preferred Mortgage is a full service mortgage banker and is a member of the Prosperity Home Mortgage, LLC family. Specializing in residential and refinance loans, Pennsylvania Preferred Mortgage offers a wide range of mortgage products, including fixed and adjustable rate mortgages, jumbo loans, Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, and renovation financing. Learn more at www.papreferredmortgage.com.