Financing
Mortgage Information
Don't build yourself a mortgage mountain. It's fine
to want the best home you can afford, but be certain
that it is comfortable affordability. Although you
may find certain mortgage lenders who will stretch
your qualification ratios (the ratio of your total
mortgage payment to your total income), the traditional
ratios--the mortgage payment as 28% of your income
and the total of your mortgage payment plus your
monthly debt payments as 36% of your income--are
good basic guidelines.
Get your budget under control. Spending some time
reviewing your budget (or developing one if you
don't already have it) and sharpening your money
saving skills can bring big rewards later. A coordinated
budget allows you to get the most home for your
money without strapping yourself while eliminating
wasteful spending.
Prepare to pay off small debts. Having 3 credit
card balances, for example, one with a $125 balance,
a second with a $165 balance and a third with $275
balance will only cloud the picture. Even though
the total is only $565, all 3 will have minimum
payments, credit lines, etc. If possible, prepare
to pay them down to $0 balances.
Begin to gather documentation. It is not necessary
that you have all items on hand before you apply,
but there are a number of documents you will need
eventually and the approval process will go much
smoother if you begin to gather them now. Examples:
W-2's and income tax returns from the last few
years (especially if you are self-employed), copies
of pay stubs, a copy of your credit report (you
can get a free copy of your credit report here),
records of any child support or alimony (either
going out or coming in) and bank statements for
all accounts (checking and saving) for the last
several months.
Don't forget about closing costs. In addition
to your down payment, you will need to reserve
funds for closing costs. Depending on the type
of loan and your location, these costs can range
from 2-5% of the mortgage amount, will be paid
in cash at the closing and cannot be borrowed
funds.
Compare. There are lots of sources for mortgage
funds--be sure to make comparisons. Your local
bank or credit union, mortgage brokers and Internet
resources are all available. Be certain to compare
equal terms, down payments and loan types.
Consider points when comparing. Your total mortgage
cost will be determined by 3 factors: The interest
rate, the term and the amount of points.
Get educated! Securing a mortgage is not all
that complicated, but if you approach it blind,
mistakes can be very expensive! Get as much information
as you possibly can.
Consider a 15 or 20 year term. Many home buyers
make the assumption that a shorter term will boost
their payments out of reach. Unless you make the
comparison, though, you may never know if a 15
or 20 year (if available) term could have been
affordable. If you are concerned about committing
to the higher payment of a shorter term, try this
tactic: Mortgage the home with a 30 year loan
but have the lender develop a 15 and a 30 year
amortization sheet for you. Then, do your best
to pay the mortgage at the shorter term payment.
It will do wonders for your equity position!
Adjustable Rate Mortgages (ARMs). If you are
certain that you are going to be in the house
for a short time (less than 5 years for example)
strongly consider an Adjustable Rate Mortgage
(ARM). You will take full advantage of the lower
intital rate and not be as concerned about rate
increases since you will have moved when they
begin to take effect. Tailor your ARM's first
adjustment period to the time you will be in the
house.
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