Getting Ready For A Mortgage

If you’re a first time home buyer, beware of falling into the monster mortgage trap. It’s perfectly normal for a buyer to want the very best new house they can afford. Just make sure it’s a new home that fits within your comfort zone of affordability. There are many lenders that will expand a borrower’s qualification ratios to the max (total mortgage payment to your total income ratio). But keep in mind, the standard ratio of 28% of income as mortgage payment and 36% of income as mortgage payment plus monthly debt payment really does make good sense.

Budget is Key

The first thing you’ll want to do is get a handle on your monthly budget and spending. Take some time to review your current budget and if you don’t already have one, now’s the perfect time to create one. If you haven’t made it a habit to save money, now is also the time to sharpen those skills. You’ll need a comprehensive budget in order to buy the most house you can afford without feeling totally strapped and to help nip incidental spending in the bud.

Pay-off Small Debts

Before going for a mortgage loan, it’s a good idea to simplify your debt scenario by paying off as many of your smaller debts as you can. Three revolving debts with minimal balances under $200, for example, will only fog up your debt profile. Even if the total is less than $600, all three will have monthly minimum payments and lines of credit. Zeroing out this type of debt is better for a borrower’s credit picture.

Gather Up Documentation

Begin to pull together documentation that a lender will require from you. You won’t need every item in your hands before you apply, but there will be numerous documents that you’ll eventually need so make the loan approval process run smoother by getting as much together ahead of time as possible. An applicant will need to provide items such as: income tax returns and W-2s from the last few years, copies of all three credit reporting bureaus, last 12 months of pay stubs, bank statements from all accounts (checking and savings) and any child support or alimony records for the last six months.

Funds For Closing

In addition to your down payment, you’ll need enough funds put aside for the closing costs. Closing costs will vary depending on the type of loan and the the area in which you live. Typically, closing costs can range anywhere from 2-6% of the mortgage loan amount. The closing costs should be spelled out in your pre-approval and/or good faith estimate and are paid in cash at the time of settlement.

Compare Mortgages

Comparative shopping is extremely important when seeking the right mortgage to purchase a new home. There are numerous loan options available as well as sources for mortgage funds. Your local bank, mortgage brokers, reliable friends and family (with previous experience paying mortgages) and the Internet are all possible sources to look into. Remember, You’ll want to compare apples to apples - equal loan types, down payments and terms.

Obtaining a mortgage really isn’t rocket science, but you’ll what to know a few things before speaking to a lender. For a list of commonly used mortgage terms, visit Mortgage Speak For First Time Home Buyers. Knowing what lenders are talking about will be to your advantage and could save you from making expensive mistakes otherwise.

As with most things in life, being informed and prepared is key when buying a new home and taking out a mortgage. You can obtain more information about mortgages by visiting the experts at New Homes Central Lending.

[tag]mortgage loans, mortgages, new home loans, new home, new house, new homes [/tag]

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