Before you start shopping, there are a few things you need to do.
Get your credit into shape: A good credit rating can save you thousands of dollars over the course of your mortgage. Pay off any debt you have and check your credit report for any anomalies.
Gather up some cash to pay up-front costs: Unless you have a really high credit rating or have access to VA or FHA loans, you're going to need a lot of money to get into a house. You will need money for three things:
Down payment: This will depend on your credit rating, but typically for a first time borrower you'll need to put up 20% of the home's total price.
Closing costs: This can be anywhere from 1% to 8% of the home's total price, with the percentage going down for more expensive houses. Sometimes the bank will add the closing costs into your mortgage.
Other fees: These include bank fees, inspection fees, and other miscellanea. Plan on spending $500-$1000.
Get pre-approved for a loan: Once you have some money together, you can start shopping for a loan. There are three main criteria:
You must have steady employment for at least two years.
You should have a small amount of revolving debt.
The mortgage payment must be less than 1/3 of your total income.
If you have a decent credit rating, you should be able to get a loan that's about three times your yearly income.
You can calculate monthly payments with varying terms, interest rates, and down payments here:
Here's an example:
If you want to buy a $200,000 home, you will need $40,000 for the down payment, $10,000 for closing costs, and $1,000 in other costs. That's $51,000 up front. Your principle would be $160,000. A loan over 15 years with an APR of 5% would cost $1,265 per month. You would need a yearly income of at least $45,500 to be approved.
Posted 4485 day ago