Tips For First Time Home Buyers – Avoid Paying Too Much For a Mortgage

Calculate How Much Home You Can Afford

There are millions of homes to choose from and it can be daunting if you start house hunting without narrowing your search first. To set yourself up for success, the best place to start is to consider how much home you can afford.

Consider Your Income

Many banks will require that your monthly costs can’t exceed a percentage of your income (for example 28%). That means if you earn $50,000 per year, your total monthly housing costs should not exceed $1166 (28% of your monthly income). But it’s more than just your income that the bank will look at…

Consider Your Debts

In addition to your income, if you have recurring debts, the total monthly payments on existing debt plus new payments for your mortgage may not be allowed to exceed a certain threshold (for example 41%).

Compare Down Payment Options

Nearly all mortgage loans and lenders require some amount of cash as a down payment. The amount you’ve set aside for this could determine the kind of mortgage you qualify for. It will also impact how much you can afford to borrow for a home.

Loan Types with Lower Down Payments

Most lenders prefer a down payment of 20% or higher to qualify for a conventional loan, but there are more than 2,400 home buyer assistance programs in the United States that offer down payment help in the form of grants, low-interest or deferred loans, forgivable loans, and other programs. Help with closing costs may also available.

COMPARE MORTGAGE LENDERS

One of the number 1 mistakes made by home buyers is NOT shopping around for a mortgage! Your Realtor knows a guy, or maybe your parents used a mortgage broker in the past.

Don’t fall into this trap. It can take some time, but you’re going to have your mortgage for the next 30 years, so it’s really worth prioritizing.

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