4 Mistakes to Avoid when Completing Your First Home Loan Application

Shopping for a first home loan presents a challenge to buyers who are not experienced in the process. If you do not complete your application right, you may get bad loan quotes without realizing you can do better. It is important to follow a disciplined approach to your first loan, even if you are very excited to buy your first house. Having discipline from the start will save you headaches later. Avoid these simple mistakes.

#1 Not Applying for FHA Guarantees

Not everyone will benefit from an FHA loan guarantee. However, some people will, and you may be one of them. An FHA guaranty comes with many benefits. Among these is a lower interest rate on average and lower down payment requirements. If you are eligible for this guarantee you will also have more options for loans. Lenders like applicants who are guaranteed by the federal government because it reduces the risk of a loan. The opportunity to appear less risky is very important for a first time borrower.

#2 Not Getting Pre-Approved

You should not go home shopping until you know exactly how much house you can afford. While you may have an idea of the loans you can achieve and your maximum limits, you will not know for sure until you hear it from a bank. Getting pre-approved for a mortgage helps guide you in your home search and selection. On the other hand, many people do not know they can afford more than they are currently seeking until they get a loan approval.

#3 Not Providing Supplemental Information

When you apply for a pre-approval do not be shy about giving the bank as much information as is prudent. For example, you may be self-employed. Instead of simply stating an estimated monthly income, get a copy of your tax statement from the previous year to verify your exact income. The same is true if you have a lot of wealth reserved in investments. Consider providing a snapshot of your portfolio for your bank to see how much you have saved. This information should be concise enough that your loan officer can go through it within a reasonable amount of time.

#4 Making an Inappropriate Payment

Your bank may only require a 5% down payment. However, if you put less than 20% down on a home, you will need to purchase mortgage insurance. This can greatly increase the cost of financing your home. Putting at least 20% down on a standard loan is the best plan. FHA loans, however, can offer you the chance to put less down without buying insurance. This is a better option, because you then have the cash for closing costs and home repairs. Holding the money allows you invest and grow your holdings before you hand a portion over to the bank.