It is both exciting and a bit scary to buy your first house. This is an extremely important step so you would want to lower the risk of costly mistakes to the very possible minimum. For this, you have to be fully prepared for what lies ahead. Use some practical advice which will help you secure the best mortgage and enjoy homeownership fully.
Find out how much house you can afford.
This is now easier than every before with the mortgage calculators available online. All you need to do is to figure out how much you can afford to pay in the form of monthly installments. Then the calculator will show you how much you will be able to borrow given the current interest rates and the loan term which you prefer. The next step is to compare this number to the property sales prices in your area. You will definitely benefit from experimenting with different numbers to see which kind of borrowing strategy will be best for you.
Take into account all relevant costs.
There are various different costs which you will incur as a homeowner in addition to the mortgage payments. The closing costs associated with the property purchase deal are typically around 3.5% of the purchase price and you will have to pay them out of your pocket. You will also have to pay taxes and home insurance premiums. It is important for you to calculate all of these costs to decide whether you will be able to afford homeownership.
Check whether you qualify for a mortgage.
As of January 2014, the requirements which you have to meet in order to qualify for a home loan are stricter. Applicants have to have debt-to-income ratio lower than 43%. In general, the monthly home loan payment should not exceed a third of your gross income. You may be able to qualify for a loan with credit score of 600, but the most affordable rates are available to applicants with score higher than 720.
With an FHA loan, the minimum down payment requirement is 3.5% while for conventional loans it is typically 10%. You have to ensure that you have sufficient savings for making this payment. In general, if it is lower than 20% of the property purchase price, you will have to pay mortgage insurance as well.
Get familiar with the different types of loans.
There are loans with a fixed rate and ones with adjustable rate. There are also hybrid loans which have the rate fixed for an initial period of time. There are loans especially designed for the purchase of luxury properties. There are government-backed mortgages including FHA loans, VA loans and USDA loans. It pays off to compare all options available to you in order to make the right choice.
Finally, you should consider your future plans carefully. How long do you plan to stay in this house? Do you plan to have a bigger family? Do you plan to make other major investments in the future? Do you plan changing your job or starting your own business? All of these and other relevant factors should play a role when you are making a decision on a mortgage.
Practical Mortgage Tips for First-Time Home Buyers
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