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When my husband and I started getting serious about purchasing a home we had a lot of things to consider.
When we sat down, we calculated what our current income was, what bills we currently have and worse case scenarios (job loss, injury, etc).
Getting a mortgage is a very important decision, so you have to make sure that you get the best mortgage for your needs. Despite this, many people simply opt for the first deal that looks attractive without really shopping around. If you really want to find the best mortgage for your needs, then you need to carry out a number of checks at each juncture before you sign for the mortgage.
Look Over and Repair Your Credit
Before you apply for any type of loan, you should get hold of your credit report and make sure that all the information is accurate. It is your responsibility to make sure that the report is accurate. If the report has mistakes in it, then you could end up paying a lot more for your mortgage. We personally absolutely LOVE Credit Sesame… It's the one credit monitoring website we've been able to get daily updates when there are changes to our credit and more. You can check your credit report also at least once a month which helps to stay on top of any credit issues that may hurt getting approved for any loan.
Learn the Mortgage Lending Language
Another step you should take before applying for a mortgage is to learn the terms involved in mortgage lending. Learn about the types of mortgages as well as any abbreviations that are commonly used. The more you know, then the less likely you are to sign something that will cost you extra money.
Our realtor has been absolutely awesome. It really helps that he's a very close friend also. Having a friend as your realtor has it's pros and cons though. Pro, they know what you like and can talk to you in your language, they also have your best interest more than if you had hired a realtor from recommendations. Con, sometimes they are in what I call “work mode” and have to be that realtor first (this isn't really a HUGE con, but it can be to some people).
Think – “How Much House Can I Afford“
The last step to take before applying for a mortgage is to ask yourself “How much house can I afford to pay back each month”, and how much you are looking to borrow. Thinking about “How Much House Can I Afford” makes you actually THINK about what you're going to be able to afford without overstretching yourself and will get the amount of money you need to buy your ideal property. Don't just factor in only the principal, you need to factor in insurance, taxes, utilities, other bills, etc. Your mortgage should be NO MORE than 40% of your income. Ideally, closer to 20-30% for cushion.
I wrote a post a while ago “WHAT I LEARNED FROM MY OWN BUDGETING MISTAKES“. You're going to want to check that post out! I have an awesome freebie printable that will help you budget! It helps us keep track of our spending and budget our monthly expenses without trying to figure out where money is going.
Shop Around For The Best Mortgage
After you have done some research and got your credit checked, you should begin shopping around for a mortgage. The more lenders you look at both on and offline, the more likely you are to find the best deal. All mortgages are not built the same way either. There are different mortgages for different situations. We were able to lock in a USDA/RHS Mortgage loan because we have the credit, but are considered lower-middle income. Types of more well-known loans are – conventional, FHA Loans, VA Loans, & USDA/RHS (what we have).
Determine All The Costs With Closing
Although a low-interest rate is important, there are usually other costs involved in getting a mortgage that you might not know about. Make sure that you know exactly how much it will cost you complete the mortgage application and any other fees that might apply such as late or early payment fees. Here's a breakdown of some fees you may or may not have when closing on a home:
- Credit Check Fee – $25 – $50
- Home Inspection Fee – $250 – $500
- Pest Inspection Fee – $100 – $250
- Survey fee – $150 – $300
- Appraisal fee – $450 – $550
- Titling fees – $1000 – $2500 (includes Atty fees, title search, doc prep, closing fee, examination fee, and title insurance)
- Recording Fees & Transfering fees – $500-800
- Homeowners insurance (has to be pre-paid for a year) – $800 – 2000
- Packaging Fee – $1250 – $2000
Most of these costs are included in the closing costs. You can request for the buyers to pay the closing costs to cut down on your out of pocket. We did that and it's saved us thousands.
Don’t be Pushed a Contract You're Not Comfortable With
One of the most important things to remember is not to be pressured into signing anything you are uncomfortable with. Any lender that tries to get you to borrow more than you can afford or is pushy about you signing should be avoided. If you are in any doubts at all, do not sign the agreement and look elsewhere.
If you need help understanding clauses then get a realty lawyer to look over the contract and explain the terms. Also, make sure you do not agree to anything that you don’t need.
Check and double-check
Once you have found a lender that you are happy with, make sure that you check the contract thoroughly again, and read all of it through a few times, especially the small print. This is especially true if something was previously agreed and then you have met on another occasion to sign the deal. If anything changes then walk away and don’t sign. If you are careful and know what you are looking for, then you will find the best mortgage for your needs.
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