When you’re looking for homes for sale in Aurora, it’s easy to get sidetracked by pictures, locations, and amenities. Each house is different and before long, you’ll find yourself in love with listings across the area.
Before you get too excited, you need to turn your attention to your finances. This means getting pre-approved for a mortgage to help you pay for that new home in the first place.
Applying for Your First Mortgage? Here’s What You Need to Know
If you’ve never taken out a mortgage before, the process can leave you scratching your head. This is completely normal, but there are a few things you can do to prepare yourself. Here’s what you should know when you’re taking out your first mortgage.
Be Aware of Your Budget
Before you apply for a mortgage, take a long, hard look at your finances. How much money do you bring in each month? How many recurring expenses do you have that will carry over to the new house once you buy it? This can be anything from insurance costs to utility payments to monthly prescriptions you need to stay healthy. Total those costs up and see what you have left in the way of disposable income.
The last thing you want to do is put offers on homes for sale in Aurora that don’t fit your budget. Even if a mortgage lender approves you for a large loan, you shouldn’t feel tempted to borrow that amount if you’re not completely sure you can afford the monthly payments.
Your Credit Score Matters…A Lot
Almost all mortgage lenders look at your credit score to determine whether you’re qualified for a loan or not. If your credit score is high (think above 700), you stand a better chance of getting a loan with a great interest rate. But if your score is on the lower end, you could end up paying higher-than-standard interest on the loan or not qualify for the mortgage at all.
Before you speak with a mortgage lender, get your credit score. If it’s high, you can go ahead and apply for a loan as soon as you’re ready. If it’s not, you may want to take a little time to build your credit back up. Pay off your existing debts, avoid taking out any new loans, and pay your bills on time until your score increases. Once it does, you’ll likely get a better deal on your mortgage.
We’ve mentioned this before and it bears repeating: shop around for mortgages. You need to find the best rates possible to help you save money over the life of your loan. If you go with the first lender you find, you could end up with a higher interest rate than you truly deserve. This could cost you thousands in just a few years.
Call around. Get quotes from multiple lenders and compare their offers before you make a decision. The best loan is one that offers you a large loan amount and a low interest rate.
Pre Approval Is Always Best
You don’t have to start looking at homes before you can shop around for mortgages. In fact, you shouldn’t! Getting preapproved for a mortgage can help you narrow down your search to homes that fit your budget. Even better, it will help speed up the purchase once you find a house you love.
Know the Terms
No, we’re not talking about definitions for the legal and financial jargon you’ll find on a mortgage application. We’re talking about the loan’s terms or duration and type of interest rate. Most mortgages last between 15 and 30 years. If you choose a 15-year loan, your payments will be higher each month, but you’ll pay less in interest over the life of the loan. If you choose a 30-year mortgage, you’ll have smaller monthly payments, but will end up paying more in interest over time.
You also need to consider whether you want a fixed interest rate (one that never changes) or a variable rate (one that changes with the market). Your mortgage broker will be able to help you figure out which one is best for your financial situation. Keep in mind that the terms you choose may impact whether you qualify for the mortgage.
You Will Need a Down Payment
Unfortunately, lenders like to know that you’re serious about the house (and the loan) before they give you the money. The only way to illustrate this is by placing a down payment on the house. In most cases, this will be about 20 percent of the asking price. That down payment protects the lender’s interest in the loan if you end up defaulting or not being able to make payments.
If this is your first home, you may not have to pay that down payment completely out-of-pocket. Colorado has a number of first-time homebuyer programs to help offset the cost of the down payment. You just have to apply for those programs to see what you’ll get. It may not be enough to cover the full down payment amount, but it can decrease your up-front expenses.
You Can Bundle Improvements with Your Mortgage
It’s normal to want to make a pre-built house feel like a custom home built around your needs. You can apply for a separate home improvement loan to do just that, but you may not have to. Instead, you can consider rolling those improvements into your mortgage loan amount.
There is a caveat, though. Most mortgage lenders only approve improvements that add value to the property. If you’re looking for funds to add artificial grass over an old deck, you’re not likely to get them. But if you’re trying to upgrade the kitchen, replace old carpets with hardwood floors, or install new energy-efficient windows, your lender may be willing to work with you.
Find the Home of Your Dreams Now
Now that you have a grasp on the basics of home loans, you’re ready to start looking for homes for sale in Aurora. Contact us today to schedule an appointment with our experienced team and let us help you find your dream home.