Congratulations! You’ve reached yet another milestone in your quest for lifelong success—you’ve decided to buy your first home. But before you actually sign the paperwork and move into your dream abode, you have one more important consideration looming in front of you: your first mortgage.
When you hear the word “mortgage,” you likely think of bills, expenses, and tight budgets. You also think of mounds of paperwork. And while mortgages are rarely that unpleasant in reality, they can prove quite complicated.
Luckily, you have many resources to help you. Below, you’ll find an outline of a few basic things you should know before you jump into a mortgage. Your lender can help you with the rest.
How to Get Approved for a Mortgage
Before a lender will approve you, you have to meet a certain set of criteria. These criteria include:
- A good credit score. Ideally, you should have a credit score of 720 or higher, but some lenders may approve a mortgage even if your score lies in the 600s. Luckily there are plenty of ways to improve your score before you apply for a mortgage loan.
- Enough money for a down payment. You have to put, on average, 20% of the loan’s cost down before your lender will give it to you. A few rare lenders may ask for a smaller down payment.
- Enough money to live after the down payment. Your lender doesn’t want you to skip meals for two weeks just to afford a mortgage. You look like you can’t reliably make payments if your finances are that tight.
- A regular job. You should have a great employer and two years of solid tax returns to get approved. If you work freelance, you may have a small struggle ahead of you.
You’ll also need a number of documents and information, including:
- Social Security number
- Birth date
- Residence and employment history for 24 months
- Pay stubs for the last 60 days
- W-2 forms from the last two years
- Bank statements for the last two months
- Homeowner’s insurance
- Purchase agreement documentation
- Address for the property you plan to buy
Your lender may have other requirements, depending on the company you choose.
What You Should Know About Interest Rates
The fluctuation of interest rates partially depend on you and partially depends on the economy. For example, when domestic or foreign stocks fall and unemployment increases, mortgage rates decrease. And when the market does well, interest rates rise.
These factors also affect how high or low your interest rate will be:
- Your credit score. The better your score, the lower your rate.
- Your home’s location. If you live in a safer area or a state with lower average rates, you’ll enjoy a better interest charge.
- Your home’s price. Particularly small or large loans tend to have higher rates than the ones in the middle.
- Your down payment. Lower down payments come with higher rates.
- Your loan term. If you have a longer loan term, you’ll have a higher interest rate with lower monthly payments.
Keep this information in mind as you explore mortgages and interest rates. The best way to stay on top of the latest rates is by checking the Mortgage Watch each week on the First Team Blog. If you have any further questions, ask your mortgage lender. He or she will have more personalize information for you.
