What you should know before getting your first mortgage
If you’re a first-time home buyer, the mortgage process can be confusing. Here are five things you need to know to help make the process easier and less confusing.
Buying your first home and getting your first mortgage can be intimidating—for many people it’s the biggest investment of their lives. Here are five things you need to know to move through the mortgage process from the first step to the last with confidence.
1.) Know how much you can spend before you go house hunting.
To know how much house you can afford consider three factors: your down payment, income and overall spending.
Lenders will want to make sure that your mortgage payment will be manageable for you. Generally, they use the 28/36 debt ratio rule—this means your mortgage can’t be more than 28% of your gross income and your mortgage combined with other installment loans (like car or credit card payments) can be no more than 36% of your gross income.
While lenders look primarily at debt, you’ll also want to look at your overall spending. Things like childcare, travel and eating out all affect your monthly spend. Be realistic about your budget.
2.) Reserve part of your savings for an emergency fund.
As you budget, consider the costs of homeownership. Utility bills, repairs and the upgrades you desire can add up quickly. Even in a new home, appliances can break down. Keep three to six months’ worth of living expenses accessible in your emergency fund.
3.) Keep your credit in good standing.
Your income and debt ratio don’t tell a complete financial story for your lender. They will also look at your credit score to determine how likely you are to repay a mortgage loan.
To keep your credit in good standing:
- Check your credit report for errors and dispute any problems you find. Errors can lower your credit score and this could result in paying higher mortgage interest rates.
- Pay all creditors on time and pay off any balances you can.
- Avoid financing any large purchases until after your mortgage is final. New debt will increase your debt-to-income ratio and can reduce your credit score and increase your interest rate.
4.) Make sure your federal income tax returns are complete.
A lender will verify income with the IRS for the last two years. If you filed an extension or it’s early in the year, complete your return sooner rather than later.
5.) Ask questions until you fully understand the mortgage process.
No single article can answer all your mortgage questions. That’s why it’s important to connect with a knowledgeable professional. At Consumers, our mortgage loan officers are here to help every step of the way—from the time you apply until the closing paperwork is signed.
Contact a member of our mortgage lending team online or call 800-991-2221 to get the answers you need.
Also check out our online resources to understand your first mortgage:
- Mortgage basics
- All about mortgages podcast
- Mortgage points explained
- What’s mortgage escrow about?
- Home appraisals explained
- Insider’s guide to buying your home podcast
- Home buying process checklist
Consumers helps more than 1,000 members finance land, homes, and home improvement projects each year. When you need a mortgage or home equity line of credit, call us at 800.991.2221. We’re here to help you get the home of your dreams!