How to get a mortgage for a first-time buyer | WIS Mortgages
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How to get a mortgage for a first-time buyer

Buying a home is a huge, life-changing decision to make, and it’s not uncommon to get a little nervous about the process. Unless you’re just going to pay for it out of pocket, you'll need to take out a loan to help finance the purchase of your new home. But the problem is you probably don’t know how to get a mortgage for a first time buyer. It can be a little tricky, but you’ll find that getting a mortgage is pretty easy after reading this article.

How to get a mortgage for a first-time buyer

Applying for a mortgage can be nerve-wracking, especially if you’re doing it for the first time. The good news is that you can set yourself up for success by following these steps:

1. Determine how much you can afford

Before buying your dream home, consider how much of a mortgage you can afford. Use the 28/36 rule to calculate your debt-to-income ratio. The rule determines how much your monthly income should go toward your mortgage payments. According to financial advisors, you should only spend 28% of your gross income on housing expenses and not more than 36%, or you will be financially unsound.

Your monthly mortgage payment isn't the only expense to consider. To get a better budgeting picture, you'll need to account for homeowners insurance, property taxes, and HOA fees. You'll also need to factor in your down payment and whether or not you'll need to pay PMI.

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2. Check your credit report

Before applying for a home loan, check your credit reports. Your credit report will affect the interest rate you’re offered on a mortgage and may even determine whether or not you get approved. You can easily access these reports through TransUnion, Equifax, and Experian at zero fees.

The next thing to do is to re-examine your reports and check for any errors that may be causing bad credit. Double-check to ensure all your personal information is correct, including your address, social security number, and name.

Confirm all accounts listed are accurate, including balances and statuses. You should also check for any accounts that have been opened without your permission, which is often a strong sign of identity theft.

If you find a mistake on your credit report, file a dispute with the CRA that reported it. Upon receiving your dispute, the agency must probe into the matter and report to you within 30 days.

Also, be wary of negative items on your report that may impact your credit score. Credit reporting agencies consider late payments, accounts in collections, bankruptcy, and liens to be negative factors. You should work to resolve them as soon as possible by:

3. Choose the right mortgage

When deciding on a mortgage and working out how to get a mortgage for a first-time buyer, you’ll want to explore your options. The type of loan you choose will depend on your individual needs. Some factors to consider are:

Conventional vs. government-backed mortgages

Your mortgage payments can be conventional or government-backed. Conventional mortgages require a higher down payment and stricter credit qualifications. Government-backed mortgages have lower down payments and are available to some with less-than-perfect credit. So if your credit is less than perfect, these government-backed loans might be your best option.

Fixed vs. variable interest rate

Fixed-rate mortgages tend to be more expensive initially, but they offer a predictable monthly payment. Variable-rate mortgages keep costs lower in the early years, but interest rates can rise suddenly and cause your payments to jump.

Short vs. long term loan

Consider which one best fits your situation! The shorter a term, the more money you'll save on interest charges and the sooner you'll pay off your loan. But if you're short on cash, it might be wiser to choose a longer-term to keep your monthly payments lower. For example, borrowing £200,000 at 4% over 30 years would cost you £77,451 more in total than borrowing it for 15 years.

4. Compare current mortgage rates

When shopping for a mortgage, you should be aware of the interest rate. A difference of even a few percentage points can make a massive difference to the end cost of the mortgage. For example, let's say you took out a £200,000 mortgage at 4.25%. Over 30 years, you will end up paying $154,197 in interest. If your rate was 3.50%, you'd pay £123,312 in interest and save £30,885.

The interest rate is just one aspect of your mortgage. Many fees and expenses are involved in getting a mortgage, including closing costs, origination fees, mortgage insurance, and discount points. These closing costs are often rolled into your mortgage's principal balance, and you pay interest on these as well.

One easy way to tell if a mortgage is a good deal is to look at the annual percentage rate (APR). This is the total yearly cost of your loan, expressed as a percentage of the total amount you borrow. Usually, a lower APR indicates that you are paying less. However, if you plan on moving or refinancing your mortgage within a few years, the APR may not be the best indicator of your loan costs.

5. Get preapproved

If you're a first-time homebuyer, getting preapproved for a mortgage is an excellent starting point and can help you lower stress during the buying process. When you apply, lenders will consider your credit score, income, and assets to figure out how much they'll lend to you. As a result, this process will give you an edge over the other buyers because sellers know that you're more likely to buy their property.

Note that preapproval does not guarantee a mortgage. The preapproval stage only signifies that you have qualified for a mortgage, but the process is incomplete. You still have to submit formal paperwork before your application is officially approved.

WIS Mortgages is a mortgage broker from the U.K. that offers a range of financial services to its customers, including accounting, insurance, wealth management, and pension services. Use our quick calculator to take advantage of our free, no-obligation quotes, or contact us for more information and free advice.

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