1. Determine the amount that you think you want to mortgage. The easiest way to do this is to check a mortgage calculator for the amount you were thinking and then apply that to the going interest rate to see if you come out with a monthly payment that will be acceptable. You should already have a household budget to help you make this decision. If the payment is lower than you thought it would be, run it on fifteen years and see if that is acceptable. It would be smarter to go fifteen years than to go higher in your mortgage amount.
2. Calculate twenty percent to determine if you have enough cash. If you put twenty percent down chances are you will get a better interest rate. If twenty percent is not possible I would advise lowering your purchase amount until you do have enough to put twenty percent down, rather than a larger mortgage which is a liability and could blow your household budget right out of the water.
3. Decide if you will be in the home long enough to warrant a fixed rate mortgage. If you believe that you will only be there three to five years you might consider an adjustable rate mortgage simply because you will pay less interest but if you think you will be there longer than that, a fixed rate mortgage may be the safest way to go.
4. Check on the cost of homeowners Insurance to be sure it is affordable in the location you are looking to buy. Divide the annual figure by twelve for a monthly amount.
5. Have your Realtor estimate your property taxes for you. Divide this figure by twelve for a monthly cost in taxes.
6. Check your credit report. You really need to have a score in the 700’s for your credit to be considered excellent. If it is not see seven below.
7. Correct any issues. If you have incorrect information on your report you need to correct it. Also if your score is not high enough check to see if you can tell what is bringing it down. If there is an explanation, put it in writing and ask the credit bureau to include it in your report.
8. Get a pre approval letter to make sure that you are in the right ballpark. Receiving an approval or pre approval letter from your lender will give you the confidence to go out and select a home. If your lender will not issue one then they may give you an explanation of the issues, which you can possibly correct.
9. Have your Realtor calculate the standard purchasers closing cost for the area of the country that you live in. These costs do vary depending on where you live. If you do not have these additional funds you could possibly have the seller pay a portion of them, by reflecting it in the sales contract that way.
10. Have your Realtor calculate what your mortgage payment will be based on the current interest rate and the amount of the mortgage as well as the number of years you want it amortized. This monthly amount is referred to as your PI payment.
11. Add the amount figured in ten above to your taxes and Insurance which are listed in four and five above. This figure will represent your total monthly payment also referred to as PITI.
12. Calculate what percentage your payment is of your total monthly income. This is referred to as your debt to income ratio.
13. Add up the cost of down payment and closing cost, One year of homeowners Insurance, three months of property taxes plus two months of your PITI payment to determine if you will be able to show enough funds in the bank to close on this transaction.
Getting a mortgage today in the current economic conditions may not be an easy task if you do not have the twenty percent down payment and squeaky clean credit. The banks and mortgage companies are very gun shy due to the amount of foreclosures sitting on the market as of right now. Most of these foreclosures are caused by people not putting enough money down, interest rate increases and people treating their home equity line like an ATM. The secret to success in acquiring a mortgage is not having too many liabilities and having some cash assets available to you.
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Author: Suzanne Manziek
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