Taking Out Your First Mortgage: 4 Important Tips
While owning a home is a big part of the American dream, there are a lot of factors to consider when you actually come to it. One of the most important steps is determining how much you can afford and, for many, this means taking out a mortgage. If this is your first time doing this, here are five tips to help you in the process.
1. Know your credit health
Before you apply for a mortgage, you should obtain a copy of your credit score and credit history report. Take a thorough look at both and ensure that there are no recent late payments or any errors, as these can hurt your chances of getting approved for a mortgage. If you find that your credit score is rather low, you should take some time to improve it. The lower your credit score is, the higher your mortgage rate will be. Additionally, don’t apply for new credit right before you try to get a mortgage, as banks and other financial institutions will see it as a sign of financial instability or wastefulness.
2. Know your monthly income and debts
You should document your monthly income as well as any debts that you currently have. You will also need to provide at least two weeks of pay stubs to the lender, who will use this information to calculate how much you can afford in a mortgage. If there are any debts that you can pay off before applying for the mortgage, so much the better.
3. Have a mortgage budget
Before you speak to a lender, you should determine how much you are comfortable paying. Keep in mind that in addition to the selling price of the home, you will have fees, taxes and insurance to pay. A good rule of thumb is that your total payment shouldn’t be any more than 35 percent of your gross income. You should also determine how much you can save for a down payment to put towards your first home — most lenders require at least 10 percent.
4. Shop around
Take the time to shop around and see what different banks and financial institutions will offer you for a mortgage. If you have good credit and income, a lender should offer you the best rate.
