12/01/2020: Excited to Buy Your First Home? 7 Tips For a Stress-Free Mortgage

Last month, we talked about what you should and shouldn’t do when qualifying for a mortgage. These do’s and don’ts go for everyone applying for a mortgage, from first-time homebuyers to folks getting ready to settle down in their last home for retirement. 

However, we here at Citizens Bank aspire to serve every buyer based on their individual circumstances. Today, we’d like to address all of you first-time buyers who might not be aware of the little details embedded within the process of applying for a mortgage loan.

More specifically, today, we’re going to discuss what to do before applying for your first mortgage loan. When it comes to applying for your mortgage, the trick is to be prepared. Because once you send in that application, you’re not going to be able to do it again.

Gather the necessary financial information 

A mortgage loan application requires first and foremost the submission of various financial information. Banks require your financial information as proof of your financial standing. Here is a list of things you’ll want to pull together:

  • Pay Stubs – First, make sure you have two months’ worth of pay stubs for all buyers listed on the mortgage loan application. This last part is important because, for some families, both spouses, partners, or even other relatives will be splitting the home’s cost (Relatives sometimes split starter homes so as to prepare to rent it out after moving to the next house). Banks must have the records of all buyers, not just the primary or even secondary buyers. 
  • Taxes – Secondly, remember to gather two years’ worth of tax filings. We get it, taxes aren’t exactly fun, and the last thing we want is to rehash the money we pitched into Uncle Sam. But banks need proof that a.) your taxes are all paid up (we’ll go over existing debts later), and b.) your taxes verify the pay stubs–because banks want to make sure that you have submitted the most recent pay stubs. 
  • Bank Statements – Last but certainly not least, you’ll have to hand over the past three or four months of bank statements. Again, banks want to cross-reference all the other information you’ve submitted. But they also want to know if you’ve made any significant deposits or, especially, withdrawals (more on these later as well). 

Get that credit score up

We often tell our clients and potential homeowners that this is the most critical step in preparing to apply for your first mortgage loan. While every step is, inevitably, equally important, without a qualifying credit score, banks will not be comfortable with even considering your mortgage loan.  

But wait, take a breath, and don’t sweat it! Regardless of your score, it’s likely that you’ll still qualify for a mortgage loan. However, if it’s not quite up to par for the bank you work with, you might not get the mortgage you want–meaning higher interest rates and more significant down payment. 

Fortunately, there are many ways to get that credit score up to proper levels. For a more in-depth look, check out a recent blog we posted at the Citizens Bank website. In general, however, you want to make sure that you’ve opened up (and used!) credit–as much of it as you can. This means credit cards, car loans, student debt, etc. Even more important, however, is that you pay off that credit when it’s due

Mortgage lenders want to work with people who pay their credit back on time, as this is a prime indicator of a home buyer that will pay their mortgage on time. Moreover, they want to work with folks who have a credit history. Without a credit history, a mortgage lender is likely to feel uncomfortable with lending so much money, as a mortgage loan is just one massive payment made on credit. 

Pay off any and all existing debt

Speaking of which, let’s talk about the other side of a credit transaction: debt. Remember how we suggested that you pay off those credit cards, car loans, and student debt we were talking about a minute ago? Well, make sure you do. 

Obviously, however, it’s not possible to pay down everything at once, especially something like student loan debt. Banks understand these circumstances–especially we here at Citizens Bank, where every future homeowner is treated on an individual basis. But they do want to see that you’re at least making regular payments and that any outstanding debts you carry are not beyond your means. 

Make sure you can afford the mortgage loan

Okay, perhaps this sounds wildly obvious. But you’d be surprised how difficult it can be to budget your mortgage loan! Several factors play into each individual mortgage loan, all of which can significantly change your monthly payments. 

For starters, make sure you understand the interest rate, down payment, and length of the mortgage you’re applying for. 

The down payment is, simply, how much money you’re paying upfront for the house. The interest rate, on the other hand, will help determine the additional cost to your monthly payments. After adding in some of the finer points, such as insurance and property tax, you’ll want to make sure you budget for that magic number. 

However, it’s always wise to make some room in your budget. Giving a couple hundred dollars of breathing room will do wonders for your finances–and your well-being. 

Make sure you fully understand the mortgage loan

We won’t spend too long on this one, but we do want to instill in our clients the importance of understanding all the implications of your mortgage loan. 

You might feel a sense of overwhelming anxiety the first time you peruse your first home loan. If you do, don’t worry! It’s totally natural. But remember, it’s not because the mortgage process is not all that difficult and complicated. It’s because you’re making a big decision for the first time. 

Trust us when we say that, here at Citizens Bank, we will be with you every step of the way. It’s our top priority to make sure that you walk out of our doors–or shut off Zoom!–feeling secure in your understanding of the home loan we’re offering. 

Make sure you fully understand market conditions

We might normally have left this one off the list of things to do before applying for your first mortgage loan under normal circumstances. However, these are not normal circumstances, and first-time buyers must understand today’s prevailing market conditions.

Despite the coronavirus pandemic, the housing market is booming. On its face, this might sound irrational. But when taking a closer look, it makes sense. 

Just after the pandemic began, the Federal Reserve lowered interest rates all the way to zero. Any change in the Fed’s interest rates set off a domino effect, wherein banks can borrow money at lower rates, and therefore lend at lower rates–including mortgage loans. 

So now, despite the shaky economy, mortgage loan interest rates are lower than they’ve ever been. Right now, first-time buyers are applying for mortgages at the best time in American history. 

So if you were unsure about your decision before, now may be the time to decide so that you don’t miss out on historically cheap mortgages. 

And for the love of money, don’t make a big purchase while applying for pre-approval or during mortgage approval!

This one is our favorite because it’s so doggone simple: do not–and we repeat, do not–make any big purchases before applying for your mortgage loan. 

Making a big purchase saps from the pool of cash available for a down payment. Or, it makes a massive dent of debt in your credit card, and therefore your credit score, in turn, lowering your chances of getting the mortgage for which you apply. And this is just the start of your troubles. Trust us when we say that if you learned anything today, make sure it’s this. Of everything listed above, making big purchases before applying for your home loan is perhaps the most toxic, seeping into every other step in the pre-application process. 

And yet, of all the things listed today, this one is by far the easiest. All you have to do is nothing! Every time you see that jetski commercial on TV, or that trading course on YouTube, or that sleek new sedan at the dealership, just remember: you’re in the beginning stages of buying the most essential item for any person, couple, or family–a home in which to live. 

As first-time home buyers, it’s understandable that you’re a bit taken aback by some of these steps. We assure you that the process isn’t difficult. Like most things that are new, it just takes some time to get a feel for the process. We’ve mentioned it before, but it bears repeating: Citizens Bank will be there to assist you every step of the way. Our reputation is built upon serving our clients questions and concerns, regardless of what they may be. So contact Citizens Bank today, and get started with the mortgage approval process!

Learn more about buying your first home with Citizens Bank

Citizens Bank is the oldest, continuously operating minority-owned bank in the United States. Since 1904, we’ve been serving the people of Nashville and Memphis, TN. To learn more about what to do before applying for your mortgage loan, give us a call at (855) 788-4465. For more information, visit www.bankcbn.com or find us on Facebook, Instagram, and Twitter.