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The Ultimate Guide to Mortgaging a House

Getting a mortgage for a house can be a stressful ordeal if you don’t know how to go about it correctly. With the right preparation, you can save yourself the pain of making an unnecessarily large payment or being denied a loan on the house of your dreams. With this guide to home mortgaging, your task of obtaining a loan should be less of a hassle.

Work on your credit

The first step in obtaining a mortgage is to make sure your credit rating is up to snuff. Obtain credit reports from all of the major credit reporting agencies. These records are available at www.annualcreditreport.com at no charge once per year. Beware of websites that offer free credit reports with hidden fees or recurring monthly subscription fees.

Typically, a bank will want you to have a credit rating of at least 620, which is considered good credit, but in some cases, you could qualify with a score of 580. Lenders also look at other factors such as your debt to income ratio and your length of time at your current job.

Once you obtain your credit reports, look for erroneous items that are negatively impacting your credit score. Sometimes there are errors or items on your reports that have been there longer than they should. In these cases, you can request the credit bureau in writing to remove these items. Begin working on your credit far in advance of the time that you plan on purchasing your house so that your score will have time to improve.

Find a good deal

Once your credit rating is in good shape, you can begin looking for a house that is affordable for your income range. Consider your monthly income and how much of that you want to spend on your mortgage. It’s best to keep your mortgage below 36% of what you earn per month. If you’re giving up a big portion of your hard-earned money just for the mortgage, you will have a hard time making ends meet.

You also want to have something to show for all your hard work after paying the bills, and not end up broke at the end of each month. That’s a much too stressful way to go through life. You’ll be surprised at what you might find if you start looking at houses in an affordable price range. Prices vary a great deal depending on what city you look in.

It’s also advantageous if you can save up to 20% of your home price as a down payment, otherwise, you’ll have to pay mortgage insurance that will increase your mortgage payments. On the other hand, you might feel happier if you can move in sooner without having to save up a down payment. Some federal programs enable people to forgo paying a down payment via USDA loans or Veteran’s Association programs.

Government programs

In most cases, you will need to save at least 5% for your home down payment, but FHA loans only require a down payment of 3.5 percent. You can qualify for this program if your credit score is 580 or higher. In addition to your down payment, your lender will want to see that you have some reserve cash left over to make mortgage payments. You should have enough in your account to pay at least two months of mortgage payments. If your credit score is problematic, sometimes having more cash savings can encourage the bank to qualify you.

When searching for a good mortgage rate, shop around at different lending institutions to find the best deal. Research the different types of loan programs that you can qualify for, and choose what will result in the most affordable payment that also leaves you a good amount of reserve cash. Some first-time home buyers can qualify for grants to help with the down payment. HUD has grant programs, and state and local governments sometimes offer assistance.

Before you go to the bank to discuss your mortgage and financial matters, make sure you have all your documents in order. The loan officer will want to see paycheck stubs, W2 forms, bank statements, debt documents and records of rent payments to demonstrate your ability to pay on time. They will also want to see your credit report and other financial records. The more organized and thorough you are, the better impression you will make.