Buying your first house is an exciting time, but it can be a little scary as well. To minimize your anxiety, the following will help you prepare for your first meeting with a loan officer.
Know your credit report
Go to annualcreditreport.com and get your credit report from all three of the reporting agencies. You get one free report a year. Your credit score can make a huge difference in how much you qualify to borrow and the interest rate you’ll pay.
If you find errors on your report, correct them. That won't happen overnight, so the sooner you clean it up, the better you’ll be.
If the facts are accurate but your credit history could be better, expect to spend at least 6 to 12 months cleaning it up by paying down debt.
As an example, here's how much of a difference it can make:
- On a $150,000 30-year fixed-rate (3.85% annual percentage rate) mortgage, with an excellent score of 760 or higher, your monthly payment would be $703, and you'd pay $103,156 in total interest.
- On a $150,000 30-year fixed-rate (5.44% APR) mortgage, with credit score of 620, your monthly payment would be $846 a month and rack up $154,576 in total interest payments.
Know what other documents will be useful
You'll need several other records when you talk to your lender:
- W-2 forms – from the past two years.
- Paystubs – your two most recent ones.
- Financial account statements – for the past 2 months.
- Gifts – If any money for your down payment was given to you, identify how much and where it came from. Have a document ready showing that it's a gift and not a loan.
Some of this information may be available online. When you call to make an appointment, ask what papers you should bring.
Know what you can afford
The elements that come into play are your income and its stability, how much you have for a down payment, and how much debt you have.
Maybe you have heard the 28 / 36 guideline. This means:
- Your total monthly housing commitment—mortgage principal and interest, property taxes, and homeowners insurance—should be no more than 28% of your gross monthly income (income before taxes and other deductions. So, if your gross monthly income is $3,000, the monthly house payment should be $840 or less.
- Your total debt—meaning house payments plus student loans, car loans, and credit cards—should be no more than 36% of your gross monthly income. That means if your gross monthly income is $3,000, all monthly debt payments should not go over $1,080.
Also consider how much of your monthly cash flow you want to put into house payments, so you don't end up "house poor." Find a house payment you can handle and still have money for savings, education, vacations, entertainment, childcare, and other priorities.
Down Payment and Closing Costs
Contact Atlantic and start the conversation. Our home mortgage loan experts will work with you to find the best plan for your budget. We’ll even help you get pre-approved — so you can be ready to negotiate when you find the house you want.
In addition, be prepared for these expenses:
- Closing costs for title search, appraisal fee, loan origination fee, and more
- Utility hook-up charges
- Prepayment of taxes, interest, and property insurance
- Moving expenses
For additional information take a look at the Atlantic First Time Home Buyers Guide offering “20 Things to Know about Getting a Mortgage.”
Atlantic is hosting a no cost Home Buyers Seminar March 24 in Freeport and March 26 in Kennebunk. You can sign up here. Attendees will receive a $250 coupon* towards closing costs.
Stay up to date and join our email list.
The Atlantic blog strives to deliver, informative, relevant and sometimes fun financial information. If you enjoyed this article, please forward it to a friend.
*Discount will be applied at loan closing; limit one coupon per mortgage loan.