When your family starts to grow and you get tired of paying rent (not that we all look forward to it anyway), you know it’s high time you got yourself a new house.

This is certainly a wise move, but to secure a loan, you have to navigate your way through the saturated mortgage waters. One of the first steps you should take is to find a real estate agent acquainted with the locale in which you want to buy. An experienced agent will not only help you in finding a house, but also can point you to a good lender and assist you through the rigmarole associated with getting a mortgage.

Here is a simple guide to purchasing a single-family home.

What can you Afford?

Work out the much you can afford in terms of monthly payments as well as how much you can put down. The amount you can afford should not exceed 28 percent of your gross income.

Additionally, your total debt payments, including credit cards, mortgage, and others payments should not be more than 36 percent of your income. For example, if your annual salary is $40,000, your maximum payment should be about $930 (a month).

Investigate Mortgage Options

Investigate loans from the FHA (Federal Housing Administration) which allow one to put down as little as 3.5%. These loans also tend to have very low interest rates because the government guarantees the mortgage.

First check with your current bank or other financial institution, but research on other lender in a bid to determine the best interest rate around, after you determine the amount you need to borrow.

Apply for a Mortgage

Once you zero in on a house that interests you and one you can afford, fill out a formal loan application with your chosen lender.

You will need to furnish them with financial information, a bank account and other investment records, verification of current income and two years of income tax returns. Additionally, your credit score needs to be at least 580, or 620 depending on your lender’s guidelines.

Choose a Down Payment

Figure out how much down payment you can make. When it comes to a conventional loan, most lenders require 20%. A Federal Housing Administration loan, however, may allow even as little as 3.5% down payment (as at 2009).

The terms of the loan can allow you to adjust your monthly payments; a 20-year-old mortgage will have lower monthly payments than a 10-year-old loan.

Expect other Costs

Don’t forget that you’ll have some more expenses linked to the mortgage.

Monthly escrow charges need to be made into an account that will take care of real estate taxes and home insurance. An initial escrow also needs to be paid that will cater for costs dating from the time you close the loan until the time when your monthly escrow starts paying. Also associated with the mortgage is two months’ worth of escrow payments to start the account.

You may choose to roll these costs into the loan, but the negative with this move is that it will increase the amount you need to borrow.


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