Obtaining a mortgage is one of the hardest things that you will ever do. Lenders will want to see years worth of tax returns, ensure that you have a steady job and will check to see that you have money in the bank. If this is your first time buying a home, it may be even harder to purchase a home because you may or may not have a down payment. What is the best way to get approved for your first home loan?
Find Help With Your Down Payment
Most lenders will want 20 percent of the purchase price down before approving your loan application. However, it may be possible to get that down to 3.5 percent if you use an FHA loan for first-time home buyers or 0 percent if you qualify for a USDA loan. FHA loans typically allow you to get the money for the down payment from friends or family members. Your employer may also allow you to borrow money to use for a down payment. Finally, you could borrow from your 401k without penalty to buy your first home.
Your Lender May Offer Credit Toward Your Closing Costs
Your lender may offer a credit that reduces your closing costs in exchange for a slightly higher interest rate. This may save you thousands in costs that you may not be able to afford before you close. Depending on how long you own your home, you may pay less in interest than the overall credit is worth.
Get Your Paperwork Together
When you apply for a loan, your lender will want to see your credit history, your current financial situation and your current employment situation. Furthermore, you should be prepared to show that you have money in the bank and that it has been there for at least 90 days. While this may increase your timeline to close on the home that you want, this is mostly due to anti-terror and money laundering laws.
Get Pre-approved and Put in the Offer
Lenders will pre-approve you based on your financial and credit picture on the day that you request the initial approval. However, this is not an offer to give you a mortgage. What it does is shows sellers that you have the ability to borrow enough money to make a serious offer. After you put in the offer, the lender that you choose to work with will then work with you to finalize the mortgage and finance your purchase.
Finding a home that you like is only the first step toward buying your future residence. You must still find a lender to finance the purchase and navigate their rules and criteria for agreeing to the loan. However, having your information together and working with a competent lender can make the process as easy and straightforward as possible.