First-time Homebuyer s Guide: Follow These Steps to Get Your First Mortgage Buying your first home is both exhilarating and overwhelming. Stay on top of it all with this step-by-step guide on what to expect when you're trying to get a mortgage.
If you're a first-time homebuyer, you're probably excited and a bit overwhelmed at the prospect of shopping for a new home. There are a lot of details involved in this process, including applying for and obtaining a mortgage, and it's a lot to take in. This first-time homebuyer s guide to getting a mortgage will guide you through the steps and help ease the way. 1. Check (& fix) your credit In reviewing your mortgage application, your lender will be most interested in your personal credit. The first thing you should do before applying for a mortgage is obtain a copy of your credit report. You can obtain a free copy of your credit report once a year from each major credit reporting agency (Equifax, Experian and TransUnion) by visiting AnnualCreditReport.com. Simply click the Request Yours Now! button at the top of the home page. page 1
Once you receive your credit report, do the following: Review all the information carefully, starting with your personally identifiable information like your name, address and Social Security number. If there are any errors, contact the credit reporting agency directly to get them corrected before you apply for a mortgage. Review all of the loans and accounts listed on the report to make sure they are accurate. Again, if you see any errors, contact the agency directly to begin the correction process. Get everything fixed before you apply for a mortgage. To contact the credit bureaus: Equifax Credit Information Services, LLC. P.O. Box 740241, Atlanta, GA 30374; to dispute credit report items, call 866-349-5186 Experian National Consumer Assistance Center. P.O. Box 4500, Allen, TX 75013; to dispute credit report items, call 800-509-8495 TransUnion Consumer Relations. P.O. Box 2000, Chester, PA 19016-2000; to dispute credit report items, call 800-916-8800 If you have accounts in collection: It's vital you make arrangements to pay off those delinquent debts and/or try to negotiate a settlement with your creditors. Call the individual company to whom you owe the money to make payment arrangements. Then, make sure that the payoff is properly reflected on your credit report. It will be difficult to get a home loan at a favorable rate if you have delinquent debt. page 2
2. Know your debt-to-income ratio & pay down debt Your lender will also examine your personal debt-to-income ratio, which is the proportion of debt you owe compared to your gross monthly income. Lenders prefer to see a low debt-to-income ratio because it means you are more likely to be able to meet your monthly debt payments, including a mortgage payment. Therefore, you should concentrate on paying off as much of your debt as you can. The less debt you have, the lower your debt-to-income ratio will be, which could increase your chances of obtaining a mortgage. If you have any credit card debt, start with this, paying down one credit card at a time. Then focus on paying down other consumer debt like car notes or other types of personal loans. page 3
For help paying down your debt, try: The Snowball Method. In this popular method from financial expert Dave Ramsey, you pay off your debts from smallest balance first to largest balance last. The Debt Avalanche Method. Also known as the "highest interest method," this is another popular plan in which you pay off your debts from highest interest rate to lowest interest rate. Cadence Bank Credit Card Calculator. Use this calculator to see how different debt payment options would affect your total interest paid and the number of months it would take you to pay off your balance. 3. Determine your down payment Next, determine how much money you can apply toward a down payment on your new home. The more money you can put down, the lower your total mortgage and monthly payments will be. Your bank may require a minimum down payment, anywhere from 3 percent to 20 percent, depending on such factors as your income and your credit score. This Down Payment Comparison Calculator will help you compare different down payment options. If coming up with a down payment is preventing you from moving forward in the home-buying process, you may wish to search for any down payment assistance programs you may qualify for in your state. Taking advantage of these, however, limits the types of loans and homes you can get. And keep in mind that if you put down less than 20 percent of the home's price, the lender will likely ask you to pay private mortgage insurance (PMI). page 4
4. Start gathering these documents After receiving your loan estimate, you will be asked to provide a wide range of financial documents as you prepare your mortgage application. These typically include the following: Copies of your most recent pay stubs, generally covering the past month of employment The names and addresses of your employer(s) over the past two years W-2 forms for the past two years (if you are an employee) 1099 forms or profit and loss statements for the past two years (if you own a business or are self-employed) Tax returns for the past two years Bank account, brokerage and credit card statements Statements for any other current debt, such as car or student loans, reflecting the minimum monthly payments and balances due page 5
Two important things to note: 1. These documents aren't required at the time you apply for the loan; they are required after you receive your loan estimate. 2. Try not to buy anything on credit or apply for a new credit while your mortgage application is pending. 5. Talk to a mortgage professional Once you've completed all the above, it's time to find a lender and submit your loan application. While it's important to compare rates from several lenders, don't just automatically go for the lowest rate without doing some additional research. You should ask potential lenders: How much experience do you and your team have? What does your application process look like? page 6
How much support do you give me through the process? Are there any costs involved beyond the principal and interest payments? Once you choose a lender, meet with the loan officer to review the different mortgage options available to you. As you go into this meeting, you should know that all mortgages fall into one of two categories: fixed-rate mortgages and adjustable-rate mortgages (also referred to as ARMs). In a fixed-rate mortgage, the interest rate remains the same for the entire term of the loan. Mortgage loan terms are usually 10, 15, 20 or 30 years in other words, this is the length of time you will make payments until you own your home free and clear. In an adjustable-rate mortgage, your interest rate will fluctuate based on current market rates after an initial fixed-rate period. Deciding whether a fixed-rate mortgage or an ARM is better for you depends on two main factors: 1 2 Your risk tolerance. A fixed-rate mortgage eliminates interest rate risk because the rate stays the same over the entire loan term. You ll never have to worry about your mortgage payment rising if interest rates rise but your payment will never go down if interest rates fall. Your home ownership time frame. If you plan to be in the home for a short period of time, such as three to five years, you could benefit from an ARM that locks in the initial rate for this period of time (initial ARM rates are usually lower than fixed mortgage rates). However, if you plan to be in the home longterm and want to keep your mortgage payments consistent over time, you're probably better off with a fixed-rate mortgage. page 7
Ask about special mortgage programs In addition to fixed-rate mortgages and ARMs, many lenders also offer a variety of home-buying programs, including programs geared toward first-time homebuyers and low- and moderate-income borrowers. FHA, VA, Fannie Mae, Freddie Mac and Cadence Bank all offer these types of loans. These mortgages require lower down payments and credit scores than traditional home mortgages. Different geographic areas have different standards to define low- to moderate-income borrowers, so you should talk to your lender about whether you might qualify for one of these mortgages. Once your loan application is approved, ask your lender for a pre-approval letter that you can present to the home seller. This will help reassure the seller that you ve been pre-approved for a mortgage and the sale process can move forward. page 8
For additional help The road to your first home loan is complicated, but when you break it down step by step, it's more than doable. Cadence Bank can help. For help determining the affordability of a new home, use our Home Loan Affordability Calculator. It shows you: The maximum monthly payment you can afford The maximum loan amount you can afford The interest rate necessary to make the loan affordable The loan payoff period If you'd like more information or have additional questions about our Affordable Home Mortgage product, please contact us. You can also find a Cadence Bank mortgage professional near you. This e-book is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the e-book. The e-book is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes. Cadence Bank does not provide legal, accounting or tax advice to any client who receives services from Cadence Bank. NMLS#525022 page 9