Factors to Consider When Getting Your First Mortgage
If you are planning to buy your first home, one of the first things to consider is how you will pay for it. Unless you already have enough cash stashed away to pay for your new property outright, the chances are you will need to take out a mortgage.
Author:Emmanuella SheaReviewer:Frazer PughNov 08, 20214.6K Shares185.4K Views
If you are planning to buy your first home, one of the first things to consider is how you will pay for it. Unless you already have enough cash stashed away to pay for your new property outright, the chances are you will need to take out a mortgage.
Taking on a mortgage is a significant commitment as your home is likely to be your single most expensive asset. So, taking your time to adequately prepare for this new step is crucial to ensure you make the best decision. Take a look at some factors you will need to consider before you get a mortgage:
Assess Your Credit Report
Checking your credit reportbefore you start applying for mortgages is always a good idea. If you are not sure what your credit score is, or you have not checked it for quite a long time, it is wise to take a look and see if you can try and improve it. Improving your credit report before you begin the mortgage application process will increase the likelihood that your mortgage application will be successful. When you check your credit score, it is essential to ensure that the information contained in it is accurate. If there is incorrect information on your credit report, you can get this removed so that it does not impact your chances of getting a home loan.
Affordability
When buying a home, many people are concerned about the affordability of homeownership and how this will impact their financial situation. Before viewing properties and applying for a mortgage, it is essential to check how much you can afford to spend on a home. Factoring in your outgoings and how these existing financial commitments will be impacted by a home loan is crucial. No one wants to live day to day worrying about money and where they will get the cash to cover their next mortgage payment. It is worth going through your finances carefully and calculating how much you can afford to pay out each month on a home loan to prevent this from happening. It is also essential to consider whether your mortgage payments would still be affordable if interest rates rose. Thinking about worst-case scenarios and going through your finances in this level of detail may not be fun, but it is well worth the effort involved to ensure your dreams of homeownership can become a reality.
Once you know how much money you believe you can afford to spend on a home, you will gain a far clearer idea of the types of properties that you may be able to buy.
Down Payment
Having a down payment ready and waiting to go is crucial when you plan to buy a home. So, the sooner that you start saving for your down payment, the better. Saving your cash for a down payment may seem like it takes forever, and you may need to make some sacrifices, but ultimately it will be worth the wait. Setting yourself a saving target and sticking to it each month should help you to make consistent progress as you work toward your down payment. Don’t forget to save extra money in addition to your down payment. This extra money will be vital when you need to pay for moving costs and fees.
Mortgage Type
There are six main types of mortgage available to home buyers. Understanding the different types of mortgages and how they compare with each other is vital to ensure you get the best deal. It can be confusing to know which mortgage is the right choice for you and your personal circumstances, especially when you are a first-time buyer. You may find it helpful to use the services of a professional mortgage brokerage to help navigate the process of choosing a home loan. The broker should be able to advise you on the right type of home loan to match your needs and to talk you through the different options available.
The type of mortgage you are able to secure will depend on the size of your down payment. Some mortgages require as much as 20 percent of the home’s value as a down payment, whereas others only need a fraction of this. Your current credit score will also play a part in determining which mortgage type you can get. The better your credit score is and the larger your down payment, the more options you will have available to you when looking for a home loan.
Alternative Options
As well as working through the above steps to help you get your mortgage, it is also useful to consider alternative options to ensure you make the best choice. Right now, alternative mortgages are being developed, including the emerging crypto mortgage, which could see borrowers able to make mortgage payments in cryptocurrencyin the future.
Research Incentives
From time to time, the government offers special programs to help first-time buyers purchase real estate. There are currently a few popular programs that could benefit you as a first-time buyer. The Federal Housing Administration (FHA) can insure mortgages for eligible first-time buyers to make it easier for them to buy a home. People that live in rural areas and hope to become first-time homeowners may be eligible for Government-Insured U.S Department of Agriculture (USDA) Home Loans. If you were in the military, you may be able to apply for a Government-Insured Veterans Affairs Loan. Veterans may also receive help with the closing costs on their house purchases.
As well as the insured loan schemes mentioned above, you could also consider the possibility of applying to buy a Department of Housing and Urban Development(HUD) Home. HUD Homes are properties that the HUD has taken possession of after the owners have defaulted on their FHA loan. The HUD will need to check your suitability before you can apply to buy a HUD Home, but this is definitely an option to consider when trying to get a mortgage and purchase your first home.
Emmanuella Shea
Author
Frazer Pugh
Reviewer
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