One of the most exciting financial milestones is buying a house. This is new territory, though, and solid mortgage advice is often needed. If you are looking for a little guidance as you navigate the waters of being a first-time home buyer, here is some practical mortgage advice to follow:
Know How Much House You Can Afford
The most important piece of mortgage advice that you will receive is to know how much house you can afford. Before you apply for a mortgage loan, figure out how much you can afford for a monthly payment. Don’t forget to include estimates for things like utilities, property taxes, mortgage insurance, and homeowners insurance. For the most part, you will find that the general mortgage advice is to keep your monthly housing expenses to no more than one-third of your monthly income.
Improve Your Credit Score
The next important bit of mortgage advice is to make sure you have a good credit rating. You might get approved for a home loan with a bad credit score, but you will pay a higher interest rate. You can save thousands of dollars in interest over the long term if you take the time to improve your credit score. Make sure you engage in efforts to improve your score three to six months before applying for a loan.
Save Up for a Down Payment
The more money you put down, the less you will have to borrow, thus saving you more overall. This mortgage advice can also be helpful for those hoping to get a lower mortgage rate. With a good-sized down payment (20% or more), you can often qualify for a better interest rate, saving you money.
Shop Around for the Best Mortgage Terms
Many people just go to one mortgage lender. However, it is better mortgage advice to shop around for the best terms. Compare interest rates, fees, closing costs, and other conditions, and determine which mortgage loan is right for you. You can save money if you shop around to three or four lenders looking for the best mortgage terms.
Consider a More Traditional Mortgage
When offering mortgage advice, your mortgage broker or lender might try to convince you to get a more expensive house or a bigger loan. “Creative” financing like Interest-Only Mortgages, as well as loans with low teaser rates (that reset down the road), can actually cost you more in the long run. If you need a “special” mortgage to afford the home, you probably can’t truly afford it. Stick with a more standard 30-year or 15-year fixed mortgage. You will be glad that you followed that mortgage advice later.