The Ultimate Mortgage Checklist for First Time Home Buyers
Whether you’re just beginning to daydream about that first set of keys or already hitting open houses on the weekends, getting your ducks in a row is a MUST. That’s why we created this first-time homebuyer checklist! Here’s what you need to go from HOPEFUL to HOMEOWNER:
Stack up the savings
Diligently stashing cash away for your down payment can save you THOUSANDS over the course of your mortgage. More money down usually results in a lower interest rate and more flexibility in loan types and terms.
Additionally, if you put 20% or more down on your house, you won’t have to pay for private mortgage insurance (PMI). PMI is a monthly amount added to your mortgage to protect lenders from loan defaults. Here are some great tips to save that dough.
Figure out that FICO
You and your FICO score, also called your credit score, are about to become very close. Hopefully, you’re BFFs....not frenemies. Your FICO score is a three-digit number that represents your risk level as a borrower. A higher score shows lenders that you’re likely to make payments on time and leads to a significantly lower interest rate on your loan.
There are plenty of websites that will allow you to pull a free credit report, but we recommend seeing a trusted professional from your local bank to get a great in-depth review of your credit report. The earlier you do this, the more time you’ll have to raise your score.
Solidify your budget
Lenders have a maximum amount they will loan you based on your monthly income. BUT, they know absolutely nothing about your actual budget. Student loans, car payments, childcare costs, and other expenses vary wildly between households. Assess your budget to determine how much of a monthly payment you can comfortably handle.
Use a free resource like Mint.com to get an accurate understanding of your expenses. The responsibility is on you, not your lender, to ensure you can comfortably pay your mortgage.
Become loan literate
Before you start mortgage shopping, you should have a good understanding of what kinds of loans are available and what makes them different. For example, would you recognize an Adjustable Rate Mortgage if you saw one? Did you know that the USDA doesn’t just inspect your organic yogurt...they might also put a roof over your head? Get the scoop on Fannie and Freddie (and no, they’re not a couple from your grandpa’s bingo club). Fannie Mae and Freddie Mac are federal entities that back lenders so they can offer more mortgage loans.
Once you familiarize yourself with common loan types for first-time homebuyers, you’re sure to find the perfect fit for your situation and housing goals.
Prepare your documents
Buy a giant binder with sleeves, then fill it with EVERY DOCUMENT EVER. Ok, that’s an exaggeration. Here’s a sample of some of the documents you’ll need to track down:
- Social security card
- Income verification (extra challenging for self-employed individuals)
- Two years of tax documents
- Bank account information
- Proof of rent payments
- Info on other assets like CDs, stocks and IRAs
Secure your pre-approval
Now that you have your 10 zillion documents, you’re ready to be pre-approved! Your lender will assess your information and give you the home price range for which you qualify. A pre-approval shows realtors and sellers that you're ready to buy.
Bear in mind that your pre-approval is non-binding and subject to change. Monitor your credit closely, keep saving, and don’t make ANY major moves that impact your financial standing.
Get locked in by your lender
No, getting locked in your lender’s office isn’t part of the process. You need to get your interest rate locked in while you shop. Stay in contact with your lender to ensure that your rate is secured and will not change.
To do this, you’ll need to swiftly provide the information and documents your lender requests, and make sure you receive prompt confirmation that your rate is locked in. Without being locked in, you risk a rate change that can result in thousands of dollars worth of unanticipated interest costs.
Scrutinize your Good Faith Estimate
The costs of buying your first house will definitely surprise you. And not in a good way. Thankfully, the lender is legally required to provide you with an estimate of the fees and charges you’ll incur at closing. Ask plenty of questions so you know what each amount represents, then save that much and more for closing day...you’re gonna need it.
Buying your first home can feel like riding a roller coaster. It’s super exciting, a little scary, and you don’t always know what’s around the next curve. Keep this first-time homebuyer checklist handy as you move through the exhilarating process of becoming a homeowner, and you’ll be just fine! The more prepared you are for each next step, the smoother the ride will be.