For most buyers, an important step in purchasing a new home is securing financing through a major mortgage lender. To get an idea of what to expect along the path to getting your home loan approved, let’s go over what first-time home buyers in Santa Cruz need to know about the mortgage process:
How Loans Are Categorized
As you begin looking at different mortgage lenders, you’re going to see that they offer basic information on current interest rates broken down by different categories. Most often you’ll see advertised rates for both fixed-rate and adjustable-rate mortgages with their corresponding term or the expected length of the loan. And first-time buyers in Santa Cruz need to have at least some understanding of this aspect of the mortgage process.
A fixed-rate mortgage means that the interest rate of your home loan does not change unless you decide to go through the process of refinancing the loan years from now. On the other hand, an adjustable-rate mortgage, or ARM, has language in it that specifies when and by how much your interest rates change.
If you’re looking to get an ARM, be sure to understand where your rates begin and where they will end up after those stated rate increases. Planning accordingly is key to taking advantage of an ARM to avoid paying more than you would with a fixed-rate mortgage in the long run.
Loan terms are most commonly offered in 10-year increments, normally between 10 and 30 years. However, we are beginning to see a new development in the mortgage process: the rise in popularity of 40-year mortgages. This is believed to be in part due to buyers attempting to plan far ahead as a response to the economic volatility we have been experiencing over the last few years, combined with the extreme highs and lows of the real estate market.
Do a Preliminary Checkup
Before settling on your lender of choice and going through the preapproval phase of the mortgage process, go online and request your free annual credit report from one of the major credit-rating agencies.
The report will take some time to get to you but it’s full of valuable information that your lender will be digging up in order to vet you as a potential mortgagor. Once your report arrives, go through it from front to back and inspect every little detail contained in it for any inaccuracies.
Make a list of the report’s debts and inaccuracies, then contact the reporting agency to get the dispute process rolling to correct the inaccuracies.
Make Yourself the Ideal Candidate
Next, you need to take the information you gleaned from your credit report and clean it up before a lender has a chance to catch it.
Give yourself time to budget appropriately before officially beginning the mortgage process so that you can save money to pay down any existing debts to manageable levels. The goal here is to get the percentage of your monthly income that is eaten away by your usual expenses and debts as small as possible.
Start with paying down your oldest debts and work your way toward the newest so that your debt-to-income ratio, or DTI ratio, will look spectacular when you apply for your home loan.
Apply, Communicate, and Cooperate
Once your credit history has been sorted out and your debts are under control – but not necessarily eliminated – it’s time to move on to the next step in the mortgage process: applying with your preferred lender.
It’s important to be entirely honest about your income, debts, and personal circumstances when applying for your loan. This continues through the rest of your relationship with your lender, as you don’t want to become your own worst enemy if a lender were to lose trust in you. Your lender will pull what information they can, but may request specific documentation to prove your income or ownership of certain assets.
Do everything you can to cooperate and provide the requested documentation as quickly as you can.
Guidance Through the Mortgage Process for Santa Cruz First-Time Buyers
If you’re thinking about buying your first home and want some professional guidance through the mortgage process, contact us today at 831-588-2334!