4 steps to your first mortgage
Getting a first mortgage may not be as stressful as it's often portrayed.
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Many homebuyers have heard an earful about how stressful it can be to get a first mortgage. But getting a first mortgage doesn't have to be quite the horror story that it's so often portrayed as.
With that in mind, here are four ways to make getting a mortgage easier:
1. Know your limit
A reputable mortgage broker or loan officer can help you determine the maximum amount you can borrow to buy a home. That doesn't mean that you must stretch your finances that far, however.
Consider your other monthly expenses and the other costs of homeownership, such as property taxes, homeowners insurance, repairs and maintenance. Set a budget and stick to it. (Bing: How much should you budget for home repairs?)
2. Beef up your down payment
While it's possible to purchase a home with a down payment of as little as 3.5% of the sale price, it's safer to make a larger commitment, if you can. The fatter your down payment is, the less you must borrow to buy the home and the more easily you'll qualify for a loan. Put down 20% or more and you can avoid the cost of mortgage insurance, which protects the lender but which the borrower pays.
3. Know your ratios
Lenders traditionally use two debt-to-income ratios to qualify borrowers. The "front end" ratio advises that your house payment shouldn't be more than approximately 28% of your monthly income. The "back end" ratio suggests that your house payment plus the minimum payments on your other debts shouldn't exceed about 36% of your income.
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If you have a hefty down payment and a high credit score, you may get more flexibility. But again, that doesn't mean you have to borrow a lot.
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4. Know your closing costs
Most borrowers focus on the monthly payment. But getting a first mortgage involves other costs, as well.
Typical expenses include an appraisal, home inspection, prepaid interest and title insurance, among other items. Review your good-faith estimate and discuss the costs with your loan officer so you'll know much money you'll need to have at closing.