When you are ready to look into buying your first home, there are some things that you need to be aware of concerning your first mortgage. There could be many surprises along the way if you are not aware of what might happen. Here are some tips to help you know what to plan for and expect along the way to getting your first mortgage.
Understand Your Borrowing Ability
Before you apply for a first mortgage, you should take the time to ensure that you have good credit. Get your credit reports and look them over for problems and correct them where possible. Having a good credit score before you get a mortgage will enable you to be able to borrow more and get better interest rates.
The next step is to determine how much you can spend per month on a mortgage payment and still be able to meet your regular bills. Don’t forget that home insurance and taxes will also increase your monthly bills. If you do not yet have a budget, you need to set one up to help you control money better. Also, remember that the less you owe in debt, the more you will be able to borrow.
Learn About Down Payments
Lenders today have different requirements as to how much is needed for a downpayment. It used to be that most lenders would require a minimum of 20 percent. Now, some lenders will only require 5 percent, says the Federal Trade Commission. If you get a first mortgage through a government agency, such as the FHA, the VA, or the Rural Development Services, the downpayment is generally smaller.
If you can afford it, paying 20 percent down is a good way to reduce your monthly mortgage payment, and it will also add some equity to your home immediately, says Forbes. If you pay less than 20 percent, lenders will require you to purchase Private Mortgage Insurance (PMI), which ensures that they will be paid if you fail to do so. Then, be sure to find out the details as to how and when the PMI coverage can be removed, which will save you hundreds of dollars each year.
Get Preapproved for a Home Loan
By getting preapproved for your first mortgage, you save time and help ensure that you can buy the house you want. Preapproval helps you to know exactly how much of a mortgage you can get, and it helps you to actually close the deal before the time runs out.
Find the Best Mortgage Deal
It will take some homework to find the best mortgage deal. You will need to look online first for lender interest rates. Once you have some of these, talk to the bank where you have your checking or savings accounts, and see if you can negotiate a better deal.
Realtor.com advises that you consider much more than just the interest rate on a mortgage. Be sure to look over all the fees and costs and compare them before deciding on your first mortgage. You might also consider paying points if it will give you a better deal.