The dream of owning a home is on almost everyone's list of things they want to do in their lives. It's one of the things that, in some ways, shows we've made it in life. It can make many people feel proud and like they've done something great. If they aren't ready for it, buying a home can be a confusing process for many people who want to do it. The mortgage process is without a doubt one of the most confusing and often misunderstood parts of buying a home. Most of us don't have enough money to buy a home outright, so we turn to mortgage lenders to help us pay for the home of our dreams.
If you want to buy a house, one of the first things you should learn is how credit works in the mortgage process. You're about to ask a lender to give you a large loan over a long period of time, often up to 30 years. For them to take on this risk, they need to know if you are a good credit risk, or if you can pay back the money. They usually look at things like your credit report, which shows how you've dealt with other creditors in the past, your total household income, and the price and location of the home you want to buy. Then, based on this information, they decide whether or not to give you the loan and how much interest to charge.
Interest is important to understand because, based on the interest rate, you can expect to pay back twice as much as you borrowed over the life of the loan. That $150,000 house now costs you $300,000. Your goal when getting a mortgage is to get the lowest possible interest rate.
You should also know how much you can spend on a house. Most mortgage lenders want you to spend no more than 30% of your monthly income on your mortgage payments. Of course, you can buy a bigger house if your mortgage term is longer and your interest rate is lower. It's important to buy something you can easily and comfortably afford. The last thing you want is to get into a situation where you can't pay your monthly mortgage payment.
Next, make sure you have saved up a lot of money before you start looking for a home. You will have to pay things like closing costs (which can be 5 percent or more) and as much of a down payment as you can to keep your loan amount as low as possible. Then, you'll need a little extra money to furnish your new home and fix anything that breaks. Remember, you own it now, so it's up to you to fix things if they break.
Don't feel like you're the only one who doesn't understand how to get a mortgage or buy a house. Many people worry and fear the same things you do. There are probably first-time home buyer groups in your area that meet with bankers and real estate agents who can answer your questions. Ask your real estate agent if there is such a group and when its next meeting will be. The process of buying a house doesn't have to be scary, and if you're ready, you can win big by getting the best deal on your mortgage and the house of your dreams.
