Applying for Your First Mortgage

 Posted on October 24, 2022 in Real Estate Law

One of the most exciting times in a person’s life is when they purchase their first home. But for many, the process of applying for their first mortgage can be stressful, including making sure they have enough for a down payment, gathering all the documentation, and a sufficient credit score that the financial institution they are dealing with requires. If you are applying for your first mortgage, the following is a brief overview of what to expect.

Pre-Approval Process

The first step in the mortgage process is submitting a pre-approval application with the bank or mortgage company. This pre-approval process allows the lender to examine your financial situation to determine if you can afford the mortgage loan you are seeking. There are multiple documents the lender will request to make that determination, including:

• Most recent pay stubs (typically the last two months’ worth) that also show year-to-date earnings

• One to two years of tax returns

• Last two or three months of all bank and other financial statements

• Credit report (the lender will request you give written permission to allow them to access your credit report)

• Rental history, including a list of prior landlords

• Gift letters that confirm that someone has given you funds towards the purchase of the property and that these funds do not have to be paid back

• Any other debts that do not show up on your credit report

If you have already found a home you want to purchase and your offer to the buyer has been accepted, you will also need to provide the lender with a copy of that contract, along with the seller’s contact information.

Down Payment and Credit Score

There are several factors that a lender considers in approving a mortgage. One of these factors is the applicant’s debt-to-income ratio (DTI). The DTI is the total amount of the applicant’s current debts divided by their gross monthly income. Most lenders look for a DTI of between 36 to 43 percent.

Another factor the lender considers is the applicant’s credit score. Most lenders look for a credit score of at least 620. If you have a higher credit score, you will likely qualify for a lower interest rate, as well as have the option of making a lower down payment. In most cases, the lender is looking for the applicant to have at least a 20 percent down payment in order to qualify for the mortgage.

Keep in mind these requirements are for conventional mortgages with private lenders. Government loans usually have less stringent requirements. These loans include Fair Housing Act (FHA) loans, VA loans, and USDA loans, which are all insured by different government agencies.

Contact a Fairfield County Real Estate Attorney

When applying for a home mortgage, buyers need to be careful of unscrupulous private lenders and watch out for any hidden fees or other financial requirements they were not aware of when they signed their loan papers. Working with a skilled Stamford, CT real estate lawyer – from applying for a mortgage, entering into a purchase and sales agreement with a seller, and all through the process up to the closing – will ensure that your best interests are protected. Call the Law Offices of Daniel P. Weiner at 203-348-5846 for more information.

Sources:

https://www.nerdwallet.com/article/mortgages/conventional-loan-requirements-guidelines

https://www.creditkarma.com/home-loans/i/home-loan-documents