The Ultimate Home Buying GuideBy Caitlin in Mortgage
It’s well known that the home you buy may involve one of the largest, if not the largest, transaction of your life. Equally important is the fact that this also translates to the largest amount of debt you’ll ever hold. So how can you prepare for this? For most, especially if you want to start a family, this transaction is unavoidable. What can you do to save? What do you need to know to get started?
Well, here’s your ultimate home buying guide to help you get on your way.
#1 – Shop, shop, shop!
Shopping at the mall is actually quite similar to shopping for a mortgage. You’re going to have to investigate what type of mortgage products lenders have available, who offers the best deals, and how you can qualify. It’s going to involve some research.
It’s often best to work with a mortgage broker (it can help you save time and money). This will help you compare different lenders and the different rates they offer.
Be wary of your credit score when you shop around. Remember that every credit inquiry may result in a hit against your credit score. An advantage of a mortgage broker is present here too: a mortgage broker only pulls your credit score once whereas lending institutions each pull your credit file individually if you choose to do the shopping on your own.
#2 – Your maximum mortgage
Before you hire a real estate agent and start searching for that dream home, you need to do two things: first, get a mortgage pre-approval, and second, determine what your maximum mortgage amount is. There’s no point in shopping for homes you can’t afford, so, find out what that number is and start shopping for homes that fall within the price range available to you.
To evaluate your maximum mortgage amount a lender will compare your income to your debt and calculate your debt to income ratio. Some rules of thumb are that the monthly payment amount you put towards your mortgage should stay under 30% of your income. Your total debt payments should remain below 46%.
#3 – Down payment
If you can’t come up with a large enough down payment (20%) you will be required to pay mortgage insurance until enough equity is acquired. A down payment is generally a requirement for a mortgage loan.
#4 – Interest rates
Your interest rate is not the only cost of your loan, there are other costs involved. However, given the usually long life of a mortgage, the lower the interest rate you get the more money you will save. Ask about rate locks if you find yourself qualifying for a loan at a great rate a few months before you’re ready to make a purchase.
#5 – Mortgage closing costs
Your closing costs include legal fees, appraisal costs, insurance and things of that nature. They are required by the lender before the deal can close.
Some lenders offer ways to cover your closing costs either by extending your mortgage amount or raising your mortgage rate.
For a more detailed summary of mortgage closing costs, visit this page: Mortgage Closing Costs
#6 – Requirements
Lastly, it’s important to understand that your mortgage qualification is dependent on many factors. These factors include your income, your employment status, length of employment, existing debt, your ability to pay down the loan, and of course your credit score. For more information on your mortgage and credit scores, click here.