Mortgage Lenders: 5 Tips for First Time Home Buyers

If it’s your first time buying a home, the process can feel quite daunting, perhaps especially before you start speaking to lenders. When talking to a mortgage lender about a home loan, you’ll want to be prepared. 

Fortunately, some advance preparation can help you navigate the process smoothly.

Understanding The Mortgage Process

First, it helps to be aware of the process itself. 

When applying for a mortgage, you’ll usually have to go through these steps:

Choose a lender

The first step is to choose a lender. Often, people will talk with multiple lenders to prequalify for a loan as well as to get a sense of how it would be to work with them.

Application

The application process involves providing important information, such as monthly income, bank statements, credit information, and so forth. The lender will then draft up a couple of documents, such as a loan estimate and a commitment letter.

Research

Your lender will run a credit report to determine the final terms of the loan. Also, when you find a home that fits your budget, your lender will do some research into it, such as ordering a property inspection and appraisal.

Underwriting

Your lender will create a loan file that is sent to an underwriter, who checks over everything to make sure all requirements are met. In some cases, they’ll ask you to supply additional information.

Closing

Before the closing process begins, your lender will order title insurance and make sure all approval requirements and contingencies are met. Finally, the closing for the loan is scheduled, after which funds will be released to you for the purchase of the home.

5 Tips To Getting The Best Mortgage Lenders For First Time Buyers 

When it comes to your initial meeting with your lender, the following tips should help the process go smoothly.

1. Start early

First off, you want to talk to your lender early on in the process. Doing so will allow you to get preapproved for a loan before you start shopping for a home, giving you a clear budget to work with as well as some bargaining power with sellers.

Typically, having a preapproved loan will make you more attractive to sellers because there is less risk that you’ll back out of a deal part way through. It also lets you shop confidently with a solid idea of how much house you’ll be able to afford, taking much of the uncertainty out of the process.

Starting early can also give you a chance to talk to multiple lenders, giving you more options to choose from in terms of loan offerings. It also increases your chances of approval.

2. Know important terms

As you talk to your lender, there are various terms you’ll need to be aware of. 

Some of the terms the best mortgage lenders for first time buyers will likely use include:

  • Fixed-rate – An interest rate that does not change over time.
  • Adjustable-rate – Adjustable-rate mortgages (ARM) have rates that fluctuate over time.
  • Loan life – The period over which you’ll have to repay the loan. Typically 15 or 30 years.
  • Balance – The current amount owed on your loan.
  • Amortization – The process in which your payments go toward both the balance and interest.
  • Closing costs – The costs and fees associated with closing on the loan.
  • Closing – The process of finalizing the loan and releasing funds.
  • Equity – Essentially, the amount of your house that you have paid off.
  • LTV – Loan to Value ratio, meaning the value of the home, which is used in the approval process.
  • Down payment – A percentage paid upfront. Typically, you’ll want to pay 20% down.

3. Bring important information

When talking to a mortgage lender, you’ll want to have some important information on hand. This information includes documents and financial data, which typically consist of the following:

  • Proof of income, such as W-2 forms, pay stubs, and tax returns
  • Current debts
  • Assets, such as savings for a down payment (proven with bank statements)
  • A photo ID
  • Credit history
  • Contact information

Your lender will review the information from these documents to determine how much they can lend to you and whether you’ll be approved for a home loan.

4. Be prepared for the lender’s questions

During your discussion, your lender will ask you numerous questions. Some common questions you’ll likely face include:

  • What’s your current monthly income?
  • What’s your current credit score?
  • How much do you have saved up for a down payment?
  • Do you have any outstanding lawsuits?
  • Are there any debts or legal claims against you or your property?

The idea behind these is to make sure you’re financially secure enough to be able to handle your mortgage payments.

5. Ask your own questions

The best mortgage lenders for first time buyers shouldn’t be the only one asking questions. You’ll want to ask your lender some questions as well, including the following:

  • What are all the costs?
  • Are there prepayment penalties?
  • Can we lock in a fixed interest rate?
  • Can you handle loan approval in-house?
  • How much time will approval and closing take?
  • Can you guarantee that the loan will close on time?

The answers to these questions should give you a sense of your lender’s capabilities as well as alert you to any red flags. For instance, a loan that can’t guarantee an on-time closing might cause complications when it comes time to make your final purchase.

Choosing The Best Mortgage Lender For First Time Buyers 

Ultimately, you’ll not only be trying to get a loan that matches your needs but choosing a mortgage lender who can provide exceptional service. Being able to work comfortably with your lender is just as important as approval, since they’ll be servicing your loan for some time.

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