What to Look For in Your Mortgage Loan
Deciding to buy a new home is the beginning of an exciting adventure. You have probably been saving money for many years in order to do so, and now you’re ready to take the plunge. Even if you have saved a lot of money, you will likely still need to obtain a mortgage loan to cover the price of the home. How do you make sure you are selecting the right mortgage loan? Here are six important tips to consider in your selection process:
Know Your Credit Report – Before you apply for any type of mortgage loan, it’s a good idea to obtain a copy of your credit report. In fact, we recommend getting a copy at least six months prior to applying for a mortgage loan so you can mend any credit issues that may exist on your report.
Look for First-Time Home Buyer Programs – If you are a first-time home buyer, it is in your best interest to check out the first-time home buyer programs available in your area. In many instances, these programs are sponsored by the State or Federal government, and usually offer better rates and terms than other available mortgage loans for which first-time buyers would qualify. Some are specifically designed for individuals with damaged or little credit, and most can assist people who have only saved a small down payment for the loan.
Get Pre-Qualified – When you pre-qualify, the lender lets you know what you can most likely be approved for based on your income, amount of debt, and down payment. This will come in handy when you’re searching for homes so you have a better idea of which homes are in your budget range.
Borrow Only What You Can Afford – Many people make the mistake of borrowing as much money as they can get from a lender, not necessarily what they can afford. In some instances, people will borrow the largest amount they can, thinking that their income will increase over time. I recommend keeping your mortgage payments (including taxes and insurance costs) to approximately 25 percent of your gross income. That way, you can borrow what you can comfortably afford and create a home you can “live” in, not just “exist” in.
Plan to Pay Closing Costs – The day your loan closes, you will be required to pay closing costs, your down payment, and other fees. The hard closing costs are third party fees your lender must pay on your behalf, and will cover the appraisal, title work, flood certification, etc. You will also be responsible for building an escrow account, which will take approximately two months of taxes and homeowner insurance. Speaking of homeowner insurance, you must set up a policy with your insurance agent and you will be required to pay one year’s premium up front at the time of closing.
Keep Cash On Hand After Closing – In most instances, you will have to pay for things you did not anticipate after you close on and move into your new home. It’s recommended to keep a fund equal to three months’ worth of expenses so you have a fund to draw from when needed.
Buying a home is not something that happens overnight. Take your time and do your homework so you can find the best possible mortgage loan for your specific needs. Remember, a home mortgage is an expense you will be paying for many years, so it’s important to do it right.