What Every First Time Home Buyer Should Know About Mortgages

Buying a house for the first time can be a very confusing and daunting process. Not only do you have to take the time to hunt around for a home that meets your needs, but you will also need to understand the complexities of choosing and applying for the right mortgage.

Your mortgage is likely to be the biggest purchase that you will make in your lifetime and will affect you for the next five to thirty years. It worth doing a bit of research now to make sure that you are set up with a great mortgage rate that will save yourself money in interest over the lifetime of the loan.

Here are some important things that you should think about before taking out your first mortgage:

What Do You Qualify For?

The first thing to know is what sort of mortgage you actually qualify for, that is how much will a lender be willing to give you to purchase your home? The lender will use many factors including your other debt, your monthly income, how long you have been at your job and more to determine what they think you can afford.

However, keep in mind that just because the bank has said that you can afford a certain amount doesn’t mean that you have to pay that full amount. Sometimes the bank will give you a loan for much more than you really should be spending, because when you add in the other expenses of owning the house such as renovations, closing costs, property taxes and insurance, you will be over your budget.

Be realistic and don’t try to borrow more than you can afford to pay back.

How Much Down Payment Can You Afford?

If you are planning to buy a home, it’s time to start saving like crazy to cover the down payment. Most financial experts recommend that you should pay a down payment of at least 20% of the cost of the home. The bigger your down payment can be the better because it will reduce the principle of the loan and result in you paying a lot less interest over time.

That said; if you are currently in credit card debt your focus needs to be on paying off your debt before saving up a down payment. This is because the interest on credit card debt is so expensive and it limits your ability to save. Your credit card debt will also limit how much mortgage you can take out because lenders take it into consideration when determining how much they will lend.

What Type of Loan is Best for You?

There are so many different types of mortgages out there, so take the time to find the one that works best for your situation.

Compare all of the different options that are available to you on the market and factor in their interest rates, minimum down payments and the length of the loan. One type of mortgage will eventually jump out as the best option for your particular financial needs.

 
Getting a mortgage can be confusing for the first time home buyer, but with a little bit of research you will find the option which works best for you.