Going from being a renter to being a homeowner is a big step and one that people work hard towards. In addition to saving money for your down payment, there are other items that are critical when buying a first home including:
1. Your credit report – if you are considering buying a home, it is a good idea to obtain your credit report and review it for potential errors and problem areas. Keep in mind, the better your credit score, the better terms you may get on your mortgage.
2. Documents matter – your lender will want copies of your recent tax returns (usually three years) as well as bank statements, copies of your pay stubs and information regarding all insurance policies. In addition, they will want to know about all of your debts including student loans and car loans. Keep in mind, the more information you have upfront the less time it will likely take to process your loan.
3. Pre-qualification/pre-approval – oftentimes, these terms are used interchangeably but they are completely different. Pre-qualifications are based entirely on information you provide to a lender and are not binding. Pre-approvals are typically provided after a lender has pulled your credit report and verified your income and debts. Pre-approvals can give you negotiating power with home sellers since they typically mean your loan will be approved faster.
A word of warning about pre-approvals
Too often, borrowers think if they have pre-approval in hand their worries are over. However, it is important to note that lenders will review all items before they sign off on the final loan. This means if you have a pre-approval in hand you should avoid the following:
1. Opening new lines of credit – any new lines of credit can change your debt to income ratios and result in you no longer being eligible for a new mortgage.
2. Changing jobs – before you make a decision to change jobs after receiving a pre-approval, talk to your lender. This may count against you in the final approval process.
3. Homes matter – all pre-approvals are contingent upon the home you are purchasing passing an inspection as well as coming in with a fair appraisal.
Other financial matters
When you start saving towards purchasing a new home, you may have a target amount in mind. However, there are many loan programs available and some have down payment requirements as low as 3.5 percent while others may require you to put as much as 20 percent down. Additionally, there are closing costs, title insurance and private mortgage insurance to consider.
If you are considering buying a home for the first time, at 1st Alliance Lending we know you have a lot of questions and the entire process may seem overwhelming. While you don’t have to have perfect credit or a million dollars in the bank, the better prepared you are the smoother the process will be. Contact 1st Alliance Lending today and let us help you reach your goal of buying your first home. We’ll guide you through the entire process from application to closing and help you with any questions you may have.