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According to Bankrate.com, your monthly mortgage payment, including homeowner's insurance, taxes and homeowner association dues, should not be more than 28 percent of your gross monthly income. This is only a guide; establish a budget of your income and all expenses to determine what you can comfortably afford without overextending yourself. Most lenders will require down payments of up to 20 percent of the home's purchase price, so you'll need to start saving for a down payment well before you're ready to buy.
Educate yourself on the different types of home loans. Fixed-rate and adjustable-rate are the two main types of mortgages. The interest rate will remain the same throughout a fixed-rate mortgage, meaning your payment amount will never change. In an adjustable-rate mortgage, or ARM, interest rates adjust periodically throughout the term of the loan, according to the Home Buying Institute. ARMs usually have a lower fixed-interest rate for the first few years, but it's impossible to predict how the rate will adjust in the later years of the loan. Which mortgage you prefer depends on the level of risk you're willing to assume and what you can afford.
You must determine if you'll shop for a mortgage with lenders directly or with a mortgage broker. Brokers will serve as an intermediate agent between you and lenders and have access to a greater number of loans. They can help locate loans for buyers with special financing needs, according to the National Association of Realtors. Consider such factors as interest rate, broker fees, prepayment penalties, loan terms, application fee, appraisal fees and more before applying for a mortgage.
Before shopping for a home, you'll need to provide basic information about your income and assets and have your credit reviewed by a lender to get pre-approval. Most sellers and agents will require a pre-approval letter as proof that you can likely qualify for a mortgage. When you're ready to apply, you'll need to provide extensive documentation for your mortgage application, including details of your current job and previous jobs, income, assets, other loans and credit cards, tax returns, proof of insurance and more. -
Closing on a mortgage involves several steps. First, you'll need to make an offer on the home. Lending Tree recommends making an offer 8 to 10 percent below the asking price so you have room to negotiate. Earnest money is included in the offer and will be returned to you if your offer isn't accepted.
Following acceptance of your offer, a home inspection will be conducted and contract contingencies will need to be fulfilled, including final mortgage approval. You'll need to complete a settlement sheet and other closing documentation, including applying for homeowner's insurance. Final mortgage approval, payment of closing costs, settlement of the purchase price's balance and possession of the home occurs on the mortgage closing date, which takes at least 30 days from the time the offer is first accepted.
