Tuesday, January 15, 2008

How to Get a Mortgage You Can Afford

Introduction

So you want to buy a house, right? Here's an easy-to-follow guide that will help you along the process of getting an affordable mortgage!

Instructions

Difficulty: Easy

Things You'll Need

  • Your financial information (income, monthly obligations, debts, assets)
  • The amount you're comfortable committing to a monthly mortgage payment (don't forget property taxes and insurance!)

Steps

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Step One

Be familiar with your financial situation prior to shopping for a mortgage. Make sure that you have the financial means to qualify for a mortgage and the money in the bank that lenders look for to pay closing costs and at least 3 months of payments. As well, have an idea how long you plan on staying in the home you're buying -- it can save you money! (see step 5)
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Step Two

Know your credit score. One of the main factors in qualifying for a mortgage will be your credit score. Scores above 680 generally receive lower interest rates from lenders, as well as loans where you are financing 80% or less of the home's appraised value. These equate to lower risk for lenders, better rates for you.
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Step Three

Shop around! Nothing pays off more than taking your time to shop around for a great rate. If you're familiar with your financial situation, your conversations with prospective lenders will be much more productive.
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Step Four

To pay or not to pay? Talk with the lenders you interview about paying points. A point is generally equal to 1% of the total loan amount. Lenders will let you pay points up-front to lower your interest rate on your mortgage, which can make your mortgage more affordable. Points aren't necessary for every buyer, but your lender can help you decide.
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Step Five

Review loan options from the lenders now that you've discussed your financial situation, credit, if you should pay points, and how long you're staying in the home. If it makes sense, you can consider loan options such as an ARM (adjustable rate mortgage) that offers a lower rate for 1, 3, 5, 7, or 10 years if you're only planning on staying in the home that long. These rates are generally lower than a traditional 15 or 30-year fixed mortgage.
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Step Six

Decide which mortgage option is the most affordable for your personal situation and begin the application process.

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