How to Get Approved for First Time Home Buyer Loans

Being pre-approved for a loan can get you a better price.

Buying your first home can be a challenge since you have no equity to glean from the sale of another home. At the same time you aren't saddled with having to sell one home before you can buy another. Since the 2008 housing market crash, mortgage loans are much more difficult to acquire, but it can be done.

Instructions

1. Know how much debt you carry compared to your current income -- also known as your debt/income ratio. Mortgage companies will typically avoid lending to customers who carry large amounts of debt. Check with mortgage lenders on an acceptable rate, as this may vary according to your area and the time you are looking, and know your number. If it is too high (meaning you have too much debt for your income level), then figure out a way to bring this number down by increasing your earnings and decreasing your expenses.

2. Create a budget on how much you can afford to spend on a home. Most first time homeowners don't realize all the added expenses that come along with owning a home. There is homeowner's insurance, taxes, homeowner association dues as well as added utility and maintenance costs involved. Be sure to create a new budget and run the calculations based on current interest rates to determine a logical price of a home you can afford.

3. Get a free credit report. One number and tool that mortgage lenders always use is your credit score along with your spouse's, if she is included on the loan. As a first time home buyer, be sure to get your current score and understand what it means. If there are problems on it, work to correct them before applying for a loan.

4. Hire a real estate agent to assist you in finding your new home as well as with securing a first time home buyer loan. Real estate agents understand the real estate market in your location and should be able to give you pointers on applying for a mortgage loan. Since they don't make money until you buy your home, realtors have an added incentive in helping you out.

5. Apply for a pre-approval loan early on in your home buying process. This step is critical in understanding how much a bank or lending institution will approve you for. If you are pre-approved for a $200,000 loan, then there is no sense wasting your time, or your real estate agent's, searching for homes priced at $300,000. At the same time, being pre-approved for a mortgage may allow you to negotiate on price as sellers don't have to wait to see if your mortgage goes through.

Tips & Warnings

• Plan on putting down at least 20 percent of the home's value in the form of a down payment, to avoid any additional monthly fees.

• Check up front with your lender on estimated closing costs for the loan. These additional fees can be a huge surprise to the home buyer.

References

• Forbes.com: How To Buy Your First Home