As a first-time homebuyer, you might not know where to start. Applying for a mortgage can seem complicated, but the process isn’t as convoluted as you might think. When deciding between different types of home mortgage loans from a variety of mortgage lenders, there are a few factors you should take into consideration, including:
- What type of loan you should get
- The loan amount
- How much you can afford
- What you need to apply for a loan
Different types of mortgages
When you’re ready to apply for a home loan, you’ll need to decide what type of mortgage is best for you. First-time buyers can benefit from a variety of loan types, from conforming fixed-rate loans to government-assisted VA loans.
A fixed-rate mortgage is the most common kind of home loan. It offers consistent rates that don’t change throughout the life of the loan. You can get a fixed-rate mortgage with a loan term up to 30 years.
With an adjustable rate mortgage (ARM), you will enjoy low initial interest rates for a specified number of years. Once this term ends, your monthly mortgage payments will start to rise and fall with the market rates. ARMs can be a good option for homebuyers who plan on selling or refinancing their home in the next five years.
FHA loans can be a good option for first-time buyers, as they allow down payments as low as 3.5 percent. Sponsored by the Federal Housing Administration (FHA), these mortgages are forgiving of low credit scores.
If you or someone in your immediate family is a veteran or current member of the U.S. Armed Forces, you can apply for a VA loan. These mortgages typically offer lower monthly payments than conforming home mortgage loans. VA loans don’t require a down payment on the home, making it an affordable option for first-time buyers.
Figuring out how much you can afford
Buying real estate is a great investment for you long term. When you’re on the hunt for your first home, you’ll want to figure out how much you can afford. There are plenty of components to consider when finding the right property, such as:
- Household income
- Monthly automobile, credit card, student loan and other payments
- Loan term
- Annual loan interest rate
- Approximate monthly property taxes
- Estimated homeowners insurance
In addition to these costs, most homebuyers are required to pay closing costs on the property, usually between 2 and 5 percent of the home’s purchase price. Depending on your mortgage lender and loan type, you might be able to negotiate lower fees at closing.
Home loan qualifications
When you apply for fixed-rate mortgages, you will need to share some information with our team of underwriters. When pricing our mortgage rates, the major factor we look into is credit score. Although borrowers with low credit scores may qualify for FHA and VA loans, they will likely not be considered for a fixed-rate loan. Typically, buyers with a FICO score under 620 will have a difficult time applying for a conventional mortgage. Those with high credit scores should have no trouble being approved for a home loan. In fact, higher credit scores oftentimes lead to lower monthly rates.
In addition to meeting this credit score minimum, you will likely need to have the right debt-to-income ratio (DTI). To calculate your DTI, you’ll want to take into account all of your monthly debt from credit cards, student loans, child support and auto payments. Then you can divide this amount by your gross monthly income. Your result is your DTI, a figure that lenders use to consider whether or not you can afford to take on monthly mortgage payments.
Finding the right lender
Since you might have your mortgage for up to 30 years, it’s important to make sure you’re aligning yourself with a knowledgeable, approachable lender. Especially as a first-time buyer, you will feel more at ease working with a bank you can trust.
At Nationwide Mortgage Bankers, we strive to provide our borrowers with a transparent, personalized experience. For more information on the mortgage process, or to find out more about our mortgage products, view our diverse offering of services, and get started on your home loan preapproval application today.