First Home First Loan: I Need A Mortgage Now

When most people who aspire to own a home are finally ready to buy one, they believe they'll be moving into their own home within a few weeks. They expect they will find their dream house, put down a deposit and soon be living in their very own home. First home first loan buyers find that things go very differently. One part of the process that most first time buyers are not aware of is mortgage pre-approval.

Why get pre-approval

Getting pre-approval should be the first part of the process of getting a mortgage even before a prospective home buyer starts looking around for a home to buy. Being pre-approved means that  one has found two or more lenders who are willing to lend them the money to buy the house.

Why pre-approval is important

Pre-approval is advantageous to the home buyer because it gives them a very clear idea of the kind of house they should be looking for.  For instance, if you find a lender who is willing to lend you $ 320,000 and you have $50,000  for a deposit, then you should be looking for a house that has selling price of not more than $ 370,000. 

Another reason that pre-approval should be a first step for your first home first loan is that it gives one a choice of offers. If you get more than one lender that is willing money to lend you money to buy a home, you can use this to negotiate for better terms such as lower interest rates.

Lenders are much more vigilant about whom they lend to after the debacle when many financial institutions were on the brink of the collapse and some even closed down. This was because as the effects of the recession set in, it became clear that most borrowers were not creditworthy and they could not afford to repay their loans.

Lenders are vigilant but they are also looking for creditworthy home buyers. In an economy that has been in recession, most people are struggling so the financially stable are in the minority.   Lenders are therefore willing to negotiate with qualified borrowers.

With pre-approval, first home first loan borrowers can also choose the cleanest offer. This is the offer with the least number of conditions and with more flexibility about the repayment terms.

Requirements for pre-approval

First home first loan buyers will need to provide a number of documents to be considered for pre-approval.  You will need to provide personal identification documents such as a driver's license and also recent pay statements and a letter of offer from employers received in the last two years. Lenders will also want  statements from the bank and other financial institutions that provide proof of having the amount required for a down payment. Income tax returns from the last two years will also be required.

What will get you the pre-approval

Having all these documents does not always guarantee pre-approval. The lender will first appraise them may either grant  or deny pre-approval  depending on two other key factors.  One is credit score and the other is employment history.

First home first loan buyers have  a greater challenge than those who have successfully applied for home loans before.  There are three main reasons for this.  One is that they usually do not have sufficient credit history because they are young and have just started working. Another is that they are struggling with student debt because they have recently joined the job market.  Most of them have significant  credit card balances that they accrued as students. The balances kept accruing as  recent graduates tried to get a job in a sluggish economy with limited opportunities. 

The second factor that lenders look at before granting pre-approval is employment history.  The key consideration here is stability. One who has worked in the same place for a decent salary is more likely to get pre-approved than one who has changed jobs several times fairly often since they started working.

Why it takes time 

It should now be getting clear why it takes quite a bit of time to find, buy and move into your own house.  It can take quite a bit of time to for a first home first home buyer to get pre-approval. There may several tries before it can be secured such as after taking the time to repair one's credit score and getting the required documents in order.

Shop around

One things that first home first loan buyers can do is to shop around for the best mortgage pre-approval rate. There are banks that give every client the same rate while others allow negotiations for better rates. Also consider closing times and other service factors. Do your research and find out if the mortgage bank has good reviews.

Another thing you can do is to start building a good credit report early on as a student with that first student credit card. The way it is used will have an impact, good or bad down the road to home ownership. 

You can start down that path with "The Road to Mortgage Rerady Credit." Download the free guide at the button below.

(creative commons photo credit)