The more home buyers know about mortgages, the better prepared they’ll be. The Motley Fool recently featured a range of mortgage tips to help educate first-time buyers, including:
Know your credit score. Credit scores can be a big key to knowing how much you can afford and how much interest you’ll be paying. Check your credit report and FICO score before even starting the homebuying process.
Estimate how much can be borrowed. Lenders generally don’t like to see a monthly housing payment—one that includes taxes and insurances—that’s more than 28 percent of a pretax income. The percentage threshold often cited for total debt—which includes the mortgage payment—is then no more than 36 percent. Some lenders will offer differing percentages but these are the most commonly used.
Gather the docs. Buyers will need documents showing their income, employment situation, identity, and more when applying for a mortgage. Start collecting your latest tax returns, bank and brokerage statements, pay stubs, W-2s, Social Security card, marriage license (if applicable), and contact numbers for your employer’s HR department.
Get pre-approved. A preapproval is similar to a full mortgage approval and can be submitted with an offer on a home. It shows the seller the seriousness of the buyer, who has already secured financing to purchase the house.
Add up closing costs. Closing costs generally range from 2 to 3 percent of a mortgage principal amount. Make sure you factor in closing costs to their overall homebuying budget.
Shop around. Gather several quotes from mortgage lenders; it could be worth thousands of dollars in savings over the course of a 30-year mortgage. Mortgage applications that take place over a short period of time won’t have an adverse effect on a credit score either, The Motley Fool notes.
Source: “Mortgage Tips for Newbie Buyers,” Daily Real Estate News (July 17, 2017)