Five Simple Mortgage Tips
Preparing to apply for a mortgage can be stressful, especially if you don’t know where to begin. You can get a good start just from reading these five great mortgage tips for first time home buyers.
1. Pay down your debt.
Specifically, your credit card debt. Why? Credit card debt is expensive. The average interest rate for credit cards currently is 13.8%–that’s double the 5.33% average for a 30-year fixed rate mortgage. Credit card debt also factors into how much you can borrow. Lenders won’t allow your total monthly debt (which includes car payments, student loans, homeowner’s insurance, and character taxes in addition to a mortgage and credit cards) go beyond more than 40% of your gross income.
2. Know your credit score.
Not perfect? Don’t worry! truly, buyers can finally catch a break. Some of the big players in the lending industry have finally loosened their requirements, lowering the minimum FICO score from 620 to 580 to qualify for a loan. Fannie Mae also offers an expanded approval program for those with slightly blemished credit. However, you should always be aware of exactly what is on your credit report before you start shopping for a mortgage. That way you can clear up any discrepancies or errors before lenders start making their inquiries.
3. Figure out what you can provide.
Unfortunately, mustering up a down payment and then writing a check every month is just the beginning. You should also consider closing costs, which can be as much as 3% to 5% of your home’s total value, in addition as character taxes and insurance. Funds for emergency home repairs are something else you should think of adding in. A general rule of thumb is that your mortgage, insurance, and taxes shouldn’t go beyond more than 28% of your gross income yearly, which method that budgeting is meaningful.
4. Don’t settle right away.
Shopping around does take time and energy, but it can save you thousands in the long run.
Interest rates and fees vary greatly, so not accepting the first loan offered can truly be advantageous, already though it may seem like shooting yourself in the foot. Compare loans from both lenders and brokers. Brokers position loans with lenders. They serve as a go-between, so if you don’t want to deal directly with a lender, you may be interested in working with a broker.
5. Know your options.
Mortgages can have many different features. Some have adjustable rates, others have fixed rates. There are mortgages where you pay only the interest for a while and then pay down the principal, mortgages that charge a penalty for paying the loan off early, and mortgages that have a balloon payment, or large amount, due when the loan ends. Being well informed about all your choices will ensure you find the option that’s right for you.