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February 8th, 2012 7:46 AM by David W. Welch
By Andrew Hill @ www.newhomesource.com
Are you a first time homebuyer feeling a little lost in the wide world of real estate? No need to worry. Many others have felt just like you, so we composed this article to help. Of course, if you haven’t been involved in real estate for some time, this article can also serve as a good refresher course.
You’ve weighed the pros and cons of renting versus buying and you’ve decided to buy. Congratulations! This is a huge step in one’s life. But be wary. First time home buyers are often so excited to own their own home that they can easily overlook the importance of a good mortgage rate. In fact, your mortgage rate is one of the most important factors in home buying. This rate can either cost or save you thousands of dollars in the long run. To get the best mortgage possible, you must put your credit score in good order. As you may expect, the higher the credit score, the better your mortgage rate will be. If your credit score isn’t the best, you should consider an FHA loan.
Other costs must be considered as well, such as down payments and closing costs. Once again, a good credit score will help keep your down payment low, but you should expect to put down anywhere from 3.5% to 20% of the total price. Closing costs are more difficult to alter, so you’ll need to make sure you have a robust savings account. On top of covering closing costs and the down payment, a strong savings account reaps many benefits. One such benefit is the preparation for any repair or maintenance issues. Accidents do happen and you never know when you might want to do some remodeling. The lender will also be much more negotiable on your mortgage rate and down payment with the proof that you’re not living paycheck to paycheck. Do your best to put away four months’ worth of mortgage payments.
Another important step in the process is finding out how much home you can afford. The hard and fast is rule is to make sure your home payment doesn’t exceed more than 30% of your monthly income. If you can get it down to 25%, even better! A good way to practice this is estimating what your mortgage, utilities, insurance and other costs will be, then put away that amount for a few months. This way you can determine a realistic mortgage, without the consequences of buying a home you can’t afford.
After this you’ll need to get preapproved for a mortgage, a process that has become progressively more extensive. By using the internet, you can shop for mortgage rate incognito to find the best rates and lenders. After this step, you’re home free! With your financial house in order, you can now search for the perfect home!
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