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The Basics of a Mortgage

Before you make the offer for your new home, assess how much home you can afford and how much mortgage you will need before moving in. Any lender is going to want to know

  • if you have enough income to pay the mortgage loan,
  • if you have paid your loans in the past and
  • if you have anything you can liquidate to pay them back if that income dries up.

    Take a look at your financial situation. You will want to make a down payment of about 20% or you will be looking at paying mortgage insurance. If that seems unreasonable, you may want to look for a lower priced home. However, if you are set on this property, there are lenders that will ask for as low as a 3% down payment with a number of caveats thrown in for their assurance of loan payment. Know your gross income per month. Most lenders will allow you to pay up to 29% of your monthly gross income on your mortgage. However, they will also take into consideration your whole debt. The figure used is generally 41% or less of your income should be going toward debt, which includes the mortgage, your credit card interest and any other debt payments you may have.

    The lender is going to look at your credit rating. If you are in the dark about your credit rating, you can find out what the lender will be seeing by checking on your own credit score from the three companies that keep track of this sort of information...TransUnion, Experian and Equifax. Just go to TrueCredit.com and order your credit report for a modest fee and see how credit worthy you are. You may also find that there is incorrect information in the report and you will want to correct that before the lender sees anything that will encourage him to refuse your mortgage request.

    Your "wealth" or collateral is also of interest to the lender. The house you are purchasing, as well as your financial portfolio, will be included and is fair game if you default on your mortgage. Perhaps you should put off the home purchase and rent if you will be too much in debt to live a "normal" life.

    If you are thinking of living in a home for less than five years, consider renting as well. The fees associated with buying and selling a home are not inconsiderable and may not be worth it by the time you move in and move out.

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