Thursday, December 14

How to Prepare For Taking Out a Mortgage

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Are you thinking about taking out a mortgage to buy your first home? If so, the prospect can be very daunting and is not something you should rush into if you want to have an enjoyable experience. Taking out a mortgage is something for which you need to plan carefully so that you have everything you need in place when the time comes to sign your name on the dotted line.

The first thing you need to do is to browse the websites of lenders in your area. Chances are your regular bank has a website where you can check the current interest rate for mortgages and take advantage of the free mortgage calculator on the site. This feature will give you the chance to experiment with different mortgage amounts in order to find out what the monthly payment will be for specific term lengths. You can also change the payment options to bi-weekly instead of monthly to determine how much faster you would be able to repay the mortgage in full.

In order to know how much mortgage you can afford to take on, you need to have a handle on your debt. Add up the total monthly payments that you make each month and subtract this total from the amount of money you earn. Rent does not count in determining eligibility for a mortgage, so you can leave this out, even though it is something that you have to pay every month. It is possible that you could take out a mortgage with a payment that is lower than the amount of rent that you pay.

Your credit record will play a large role in whether or not you are approved for a mortgage. Check your record to find out what your credit score is. If you have been diligent at making your payments, there is every likelihood that you have a high score and this will be favorable for you. If, however, you have missed payments or have declared bankruptcy in the last few years, you will have to work at restoring your credit rating before you apply for a mortgage.

The rules for taking out a mortgage have become more stringent since the housing crash of 2008. At one time, lenders approved mortgages with low downpayment amounts. Nowadays, most first time home buyers do need to have at least 20% of the purchase price to pay upfront and then borrow the money for the remaining portion of the purchase. You will need to have this amount of money saved for your mortgage or at least know where you can get it, such as borrowing from family or taking out another loan.

There is more to taking on a mortgage than simply signing the documents at the bank. You do need to pay legal fees associated with the paper work, administrative costs by the lender, the cost of having the home appraised and the cost of a home inspection. You must allow for these extras, called closing costs, to be added to the amount of money that you must borrow. In addition, the lender will require that you have home insurance in place before the deal is signed and sealed.

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