Buying a home for the first time can be a daunting process, especially in today's market where housing inventory is limited and home values are high.
If you're looking for a new home – and a mortgage to finance it – it's important to know how to position yourself as a strong borrower. It's also important to buy a home that works for you financially. Here are some tips from Emanuel Santa-Donato, VP, Capital Markets & Lead Acquisition at Besser, to help you with your first apartment search and mortgage application.
1. Set a budget and stick to it
Buying a home that is too expensive can leave you with a high mortgage payment that you may not be able to keep up with. For this reason, it is important to set a budget in advance of your search.
As Santa-Donato explains, "At the end of the day, you're the one paying the bills, so you want to make sure you're setting yourself up for success. Many homeowners are tempted to spend over their budget, which only leads to headaches later on."
To guide your search, Santa-Donato recommends figuring out for what amount you can afford all of your homeownership expenses, including:
- Property taxes
- Homeowners insurance
- Maintenance
- Utilities
You can use a mortgage calculator to see what your principal and interest payments look like based on your loan amount, down payment and interest rate, and then factor in those other numbers to set your specific budget.
2. Increase your credit score
Mortgage lenders like Better tend to prefer candidates who have a strong credit score. Finally, your credit score says how trustworthy a borrower you are, and lenders tend to reward strong borrowers with low interest rates on their home loans.
One of the best ways to increase your credit score is to pay all incoming bills on time. Also, make sure to check your credit report for errors and correct mistakes that could cause a lender to deny you a loan or lock you in with a higher interest rate than you would like. For example, if there is a delinquent debt on your credit report that you never made, you should address it immediately.
3. Pay off existing debts
Although lenders consider credit scores when approving mortgage candidates, they also focus on existing debt. This is where your debt-to-income ratio comes into play. This ratio measures your existing debt relative to your income, and the higher it is, the more it serves as a red flag. On the other hand, paying down debt can help lower that ratio into a more favorable range and give a lender more confidence in your ability to keep up with your home loan payments.
4. Request pre-approval of mortgage mortgage
In today's real estate market, it's especially important to get pre-approved for a mortgage, as this sends a message to sellers that you are a serious buyer with the means to meet an offer. In fact, if you're fighting with a competing buyer for the same house and you're the only one with a preapproval letter, it gives you a serious advantage.
Getting pre-approved for a mortgage can also help you narrow down your housing search. As Santa-Donato explains, "While your budget helps you understand how much house you can afford, pre-approval gives you a solid starting point and the ability to be more agile in competing in this hot housing market."
It's not easy to buy a home for the first time, especially in a real estate market like we have today. But if you follow these tips, you'll be more likely to not only find the right home, but also snag an affordable mortgage to go with it.