mortgage

4 steps to a first mortgage

Many homebuyers have heard an earful about how stressful it can be to get a first mortgage.

But the process of getting a first mortgage doesn't have to be quite the horror story it's so often portrayed as.

With that in mind, here are four ways to make getting a mortgage easier:

1. Know your limit. A reputable mortgage broker or loan officer can help you determine the maximum amount you can borrow to buy a home. However, that doesn't mean you must stretch your finances that far. Consider your other monthly expenses and the other costs of homeownership, such as property taxes, homeowner's insurance, repairs and maintenance. Set a budget and stick to it.

2. Beef up your down payment. While it's possible to purchase a home with a down payment of as little as 3.5 percent of the sales price, it's safer to make a larger commitment, if you can. The fatter your down payment is, the less you'll need to borrow to buy the home and the more easily you'll qualify for a loan. Put down 20 percent or more and you'll be able to avoid the cost of mortgage insurance, which protects the lender, but is paid for by the borrower.

3. Know your ratios. Lenders traditionally use two ratios to qualify borrowers. The "front end" ratio advises that your house payment shouldn't be more than approximately 28 percent of your income. The "back end" ratio suggests your house payment plus the minimum payments on your other debts shouldn't exceed around 36 percent of your income. If you have a hefty down payment and high credit score, you may get more flexibility -- but again, that doesn't mean you have to borrow a lot.

4. Know your closing costs. Most borrowers focus on the monthly payment they'll be taking. But getting a first mortgage involves other costs as well. Typical expenses include an appraisal, home inspection, prepaid interest and title insurance, among other items. Review your good-faith estimate and discuss the costs with your loan officer so you'll know much money you'll need to have ready at closing.

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