How-To & GuidesWhat Should First-Time Buyers Know Before Applying For a Mortgage?

What Should First-Time Buyers Know Before Applying For a Mortgage?

What Should First-Time Buyers Know Before Applying For a Mortgage?

While the share of cash buyers reached a seven-year high in 2021, most first-time home buyers have to face a necessary evil before moving into their dream home: getting a mortgage.

On the other hand, the right mortgage can also be a powerful tool to strengthen your credit score, take the first step up the career ladder, and afford the right house for your family. So, how can you be sure that your mortgage is the right mortgage?

Get started with the essential guide for first-time buyers below.

Comparing Mortgage Offers Allow You To Find the Right One for Your Needs

The first step to getting a mortgage that is suitable for you and your financial goals is to compare different terms, quotes, and agreements. When shopping for mortgages, you should compare the offers of at least three lenders and look, in particular, into the interest rates and repayment terms you’ll be able to get.

Another aspect to consider is the type of mortgage you need. For example, if you are looking to purchase a rental or buy-to-let property, you might need a specific mortgage for your project. What’s more, depending on your situation, you might be able to take advantage of Joint or Help to Buy mortgages.

Getting Pre-Approved Is Key To Streamline Your House Search

As a home buyer, you’ll be warned by your real estate agent that there is a significant risk of real estate deals falling through. But you might not be made aware of why this happens.

According to a recent survey, some of the reasons why house sales fall through include buyers changing their minds, higher offers, and conveyancing delays. But the main culprit remains the inability of buyers to secure finances after having made an offer.

So, before even setting off on a journey to finding your dream home, you should get pre-approved by the lending institution you have chosen. This process might seem time-consuming at first, but it can give you an accurate estimate of how much you will be able to borrow.

Your Current Finances Will Impact Your Interest Rates

Your financial situation plays a role in determining the kind of mortgages, interest rates, and terms you’ll be able to access. And, in particular, some indicators of your financial circumstances will determine whether or not you’ll be able to get a mortgage at all!

Indeed, according to surveys reported by MarketWatch, around 8% of mortgage applications get denied, and the main reason for these denials are an unfavorable DTI (debt-to-income) ratio and a low credit score.

If you are aware that your finances aren’t pristine, consider taking some time to rebuild your credit score and trustworthiness for a chance to access better mortgage terms.

You Can Often Get a Special Deal as a First-Time Buyer, e.g. As Low as 3% Down

The majority of homebuyers, especially the ones navigating this process for the first time, just assume that they’ll need a 20% deposit to qualify for a home. While this is the standard – and, often, recommended – down payment, you don’t necessarily have to go through years of saving and budgeting to afford your first home!

Thanks to government-sponsored programs and flexible lenders such as SoFi, you can access convenient mortgages with a minimum downpayment of 3% of the property’s value. And, even if you don’t qualify for a 3%-down mortgage, mortgages that require only a 5% deposit are available to all borrowers!

Closing Costs Are Not To Be Underestimated

When deciding how much you want to spend on your next home, there are some associated costs that you should not overlook.

While you might have taken into account the fee that your real estate agent will charge, your budget should also account for additional fees, including:

  • Loan origination fees
  • Appraisal fees
  • Title searches
  • Surveys and appraisals
  • Deed recording fees
  • Credit report charges
  • Taxes and other fees

If you are unsure about what to expect from the costs associated with buying your first home, make sure to partner with a specialized advisor who can help you navigate this exciting but daunting process.

Doing so might also help you discover government-sponsored benefits and financial assistance programs you hadn’t thought about!

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