For many of us, purchasing a home isn’t a frequent occurrence. Therefore, it isn’t surprising that most first-time homeowners have many questions about the mortgage process. Given the complex legal processes taking place when applying for a mortgage, signing the deed, and closing on your home. It can be hard to understand what practices are and are not commonplace. However, understanding the mortgage process is vital to avoid surprises down the road.
This guide will help you better understand what you need to know and what to look out for when considering financing your own home.
Best Practices When Applying for a Mortgage
First-time homeowners all too often want to jump into the house of their dreams without considering the long-term impacts of financing a home. One of the biggest mistakes buyers make is attempting to finance a home outside of their realistic budget. When you purchase your first home, it can be easy to skip over some of these best practices. However, doing so can lead to long-term financial struggles, which is why Mr. Cooper® experts recommend these practices to potential buyers.
Calculate All of Your Expenses First
For homeowners, it’s easy to overlook certain expenses accidentally. And let’s face it: moving is already expensive and stressful for everyone involved. It’s important to consider all your expenses before committing to your monthly mortgage payments. For instance, owning your own home comes with a variety of additional costs you may not have considered, such as:
- Monthly homeowners association payments.
- Landscaping and lawn care.
- Property taxes.
- Homeowners insurance.
- Utility connection fees.
- Garbage disposal.
- Pest control.
If you fail to plan properly for these recurring costs, you may find yourself struggling to make ends meet.
You may also want to consider what your current monthly budget looks like. Consider how much you pay for transportation, food, utilities, and other necessities. Compare these numbers to your monthly income and determine how much you can reasonably afford to pay each month.
Ultimately, only you can decide what margin of leeway you’re comfortable with each month. This system leaves you with some breathing room in the event of a financial emergency. Plus, it helps improve your chances of consistent on-time payments, preventing you from racking up late fees and other penalty charges.
Build Your Credit Before Applying
Purchasing a home is an exciting and liberating feeling; however, if you intend to finance your own home through lenders, such as Mr. Cooper®, you need to take the time to verify and potentially improve your credit score first.
Lenders place a lot of value on credit scores when you apply for your first mortgage. After all, credit scores provide an overall rating that shows how you have handled your finances in the past and gives lenders insight into the risk associated with providing you with a home loan. Credit scores range anywhere from 300 to 850, and typically, a “good” credit score is anything over 700 points. The higher your score, the better your chances of approval for your home loan.
Ultimately, your credit score isn’t the only factor that impacts your odds of a loan approval, but it holds a lot of significance for lenders. Therefore, it doesn’t hurt to work on improving your score before you apply.
Save Up for a Down payment
As we previously mentioned, the first thing you’ll want to do is consider how much you can afford to spend on your monthly mortgage payment. With that number in mind, you can reasonably estimate the price range of homes within your budget. Before you apply for a mortgage, it’s best to save money toward a down payment.
Conventional loans typically require borrowers to have a 20% down payment. There are several reasons for this number. First, it prevents homeowners from needing private mortgage insurance, or PMI. Next, it helps reduce the overall interest rate on your home loan. There are other mortgage options available through Mr. Cooper® with down payments as low as 3% for those home buyers who may not have a 20% down payment available.
Planning For Successful Mortgage Management
Ultimately, once you’ve purchased your first home, the next and arguably most important step is managing your mortgage from start to finish. For most homeowners, this means making sure they make their monthly payments on time consistently and alerting your lender to any potential difficulties in advance to make payment arrangements.
Understand that your monthly mortgage will change over time as well. Your property taxes will fluctuate and HOA fees could increase too. It’s best to plan ahead for these expenses and take part in HOA elections to know when your fees might go up. Between taxes and HOA dues, your monthly mortgage could change by as much as 15%.
The Realities of Buying Your First Home
Ultimately, the most important part of purchasing your first home is preparing yourself for the commitment of owning a house. Make sure you know what you’re getting yourself into before you sign off on the mortgage deed, and make sure you’re prepared to make monthly payments and abide by the payment agreement.
While financing your first home can be scary, it doesn’t necessarily have to be. There are plenty of great resources to help guide you through the process. When you go into the buying process prepared and aware of your financial limits, buying your first home is an exciting process.