What to Do Before Buying Your First Home
Unlike past generations, millennials are entering the housing market with an overwhelming amount of student debt. Tighter credit and higher unemployment rates make it challenging for millennials to save for or purchase a new home. It makes sense, then, that millennials are slow to enter the home buying market and have different outlooks and greater anxiety over long-term investments than prior generations.
Despite the trends, recent studies show that millennials are ready to take the next step and become first-time homebuyers, with 74% planning to move within the next five years. That’s why Freedom Mortgage has prepared this guide to help you prepare for buying your first home.
Step #1: Have Your Finances in Check
Before you even begin searching for a new home, make sure your finances and credit are in decent shape. To qualify for a home loan, you must have strong credit, generally pay your bills on time and have a low debt-to-income ratio. The lower your debt-to-income ratio, the more likely you’ll be approved at the level you desire.
Make sure you have enough savings for a down payment and can handle student loan and mortgage payments simultaneously. A first-time homebuyer should be able to offer a down payment that equals 5-20% of the total value of a home. If you know where your finances stand, you’ll be more prepared to apply for a mortgage that fits your budget.
Step #2: Get Preapproved
Once your finances are under control, you should get a mortgage preapproval. You will complete an official mortgage application and supply your lender with all the documents necessary to perform an extensive check on your financial background and credit score. For more information about which documents you’ll need for a mortgage preapproval, take a look at our mortgage application checklist.
With the information you provide, your lender will be able to tell you the specific mortgage amount you are approved for. Once you’ve been pre-approved for a specific amount, step back and do your own math to see if that payment is within your personal budget.
Step #3: Find an Affordable Loan
Thousands of home loans are available, making the search for the perfect loan a potentially exhausting step. Luckily, since you’re a first-time homebuyer, you may be approved for down payments for as little as 3-5%.
If you don’t have a lot saved to put toward your down payment, consider applying for a Federal Housing Administration (FHA) loan, which allows you to borrow up to 96.5% of the value of the home. If you’re a veteran, VA loans that let you borrow up to 100% of the value of the home are available from VA-approved lenders. Freedom Mortgage has been a VA-approved lender for more than 25 years.
At the end of the day, speaking with a trusted mortgage professional can help you make the right decision when searching for a loan that suits your needs. Contact Freedom Mortgage today to have all your first-time homebuyer mortgage and mortgage preapproval questions answered.