Being a first-time homebuyer can be overwhelming. You might be unfamiliar with the process, or you might grapple with the fear of a home loan rejection.
You shouldn’t let the unknown or fear sideline you from homeownership. But it is important to approach the situation realistically. This starts with an understanding of factors that contribute to a mortgage approval and knowing how to increase your odds of getting a home loan.
1. Save as much cash as possible
Some first-time homebuyers underestimate mortgage-related costs and don’t save enough.
If your loan program requires a down payment and you don’t have enough funds, you might not qualify for a mortgage. So consider how much you want to spend on a property, and then stash at least 5% for a down payment, and another 2% to 5% for closing costs.
2. Check your credit to avoid a surprise rejection
Credit report errors occur more than many realize, and unfortunately, these mistakes can reduce your credit score and make it harder to get a mortgage.
Order your free credit report each year from AnnualCreditReport.com. Contact creditors directly to correct inaccuracies, or file a dispute with the credit bureaus.
3. Don’t submit late payments
One isolated late payment on your credit report might not kill your chances of getting a mortgage, but frequent occurrences within a 12 to 24-month period might.
Pay your bills on time (or early) each month to maintain a positive payment history.
4. Pay your rent too
It’s also important to pay your rent on time each month. Rental history doesn’t typically appear on credit reports. Unless, of course, you have a history of late payments or delinquencies. If you don’t pay your rent on time, you’re not likely to pay your mortgage on time.
5. Don’t co-sign a loan
Cosigning a loan might help another person get credit, but it can also hurt your odds of getting new credit.
A cosigned loan appears on your credit report, increasing your debt-to-income ratio. This can reduce your purchasing power when shopping for a home.
6. Don’t get into new debt
Wait until after closing to apply for an auto or personal loan. The less debt you have, the easier it’ll be to qualify for a mortgage. Less debt also makes it easier to adjust to a new mortgage, especially when the payment is higher than what you paid in rent.
7. Report utility and mobile phone payments
Don’t have a long credit history? Experian offers a program that lets consumers include utility payments and mobile phone payments on their credit reports. This program (Experian Boost) can instantly add positive payment history to your credit file, strengthening your credit score.
8. Don’t job hop
Frequent job hopping—especially from one field to another—can be a sign of instability (when it results in inconsistent earnings). As a general rule of thumb, stick with the same employer for at least 24 consecutive months before applying for a mortgage.
9. Include extra income
When applying for a mortgage, you don’t have to include other income sources like alimony or child support for qualifying purposes, but you can. You must, however, show proof of timely payments during the previous six months or longer, and payments must continue for at least three years from the date of the mortgage application.
Getting a home loan as a first-time homebuyer is easier when you know what to expect, and when you know how to increase your approval odds.
Ready to start your application? Give us a call today to learn how FirstBank Mortgage can make your home loan dream a reality.