4. Pull your paperwork together
When you're ready to talk with a lender, they'll need some documentation from you, including recent pay stubs, bank account statements, W-2s, the total of your monthly debt payments (such as car loans, credit card debt, student loans, etc.), and the names and addresses of your landlords for the past two years.
5. Find lenders and get prequalified for a mortgage
Many first-time homebuyers go to their local bank or credit union, and that's the best place to start. You can also apply at two or three different lenders to compare rates and loans offered. It's best to talk with a lender and get prequalified for a mortgage before you start shopping for your first home. That way, you know how much money you'll be able to borrow.
6. Consider your mortgage options
Two of the most common options are fixed-rate and adjustable-rate mortgages.
- With a fixed-rate mortgage, your interest rate is locked in for the life of the loan. That means you will pay the same amount every month and can plan accordingly.
- An adjustable-rate mortgage, on the other hand, has a fixed interest rate for a set period of time, and then it fluctuates according to market inflation rates. Typically, this kind of mortgage offers a lower, more attractive, introductory rate. However, if the market interest rate increases, it is likely that your mortgage rate will increase as well. Adjustable-rate mortgages have more variability than fixed-rates ones and are hard to predict, so they are suitable mostly for individuals not planning on holding long-term mortgages.
7. Don't forget about closing costs
After you find the right home and the seller accepts your offer, you'll go through the process of purchasing the home, which involves paying closing costs to cover various bank, legal, and third-party fees. Closing costs can be paid by the buyer, the seller, or a combination of both; who pays for closing costs will be stated in the contract that your real estate agent negotiates for you. According to Value Penguin,2 the national average for closing costs in the U.S. is $7,227. Keep this in mind if you are responsible for paying any of the closing costs.
This guide can help answer your questions and even tell you how to get prequalified for a mortgage.