In addition to having a down payment, a first-time home buyer will need a decent credit score. This three-digit number is a numerical summary of your credit report, a detailed document outlining how well you've paid off past debts like for credit cards and college student loans. A lender will check your score and report in order to estimate the odds that you will deliver your monthly payment to them, too. In turn, they will use this info to decide whether or not to loan you money, as well as how much, and at what interest rate.

Home ownership is a superb tax shelter and our tax rates favor homeowners. Sometimes the mortgage interest deduction can overshadow the desire for pride of ownership as well. As long as your mortgage balance is smaller than the price of your home, mortgage interest is fully deductible on your tax return. Interest is the largest component of your mortgage payment.

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When you know what you can afford, start limiting your options. Take time to learn the neighborhoods you’re considering: Research the schools and municipal services, and drive through them at various times, day and night, to determine whether you want to actually live there. Do you feel safe walking around the neighborhood? How far is it to the nearest stores and restaurants, and how much does that matter to you?
If saving up to pay the total price of a house in cash isn’t reasonable for your family’s timeline, at least save for a down payment of 20% or more. Then you won’t have to pay for private mortgage insurance (PMI), which protects the mortgage company in case you can’t make your payments and end up in foreclosure. PMI usually costs 1% of the total loan value and is added to your monthly payment.
Qualifying for a loan isn’t a guarantee your loan will eventually be funded: Underwriting guidelines shift, lender risk-analysis changes and investor markets can alter. “I have had clients who signed loan and escrow documents, and 24 to 48 hours before they were supposed to close were notified the lender froze funding on their loan program,” says Recchia. Having a second lender that has already qualified you for a mortgage gives you an alternate way to keep the process on, or close to, schedule

Next, review exactly how much you’re spending every month – and where it’s going. This will tell you how much you can allocate to a mortgage payment. “Make sure to account for every dollar you spend on utilities, kids' activities, food, car maintenance and payments, clothing, entertainment, retirement savings, regular savings, miscellaneous little items, etc., to know how and where a new mortgage payment fits into your budget,” says Liz Recchia, owner/broker at We Sell Real Estate, LLC, in Phoenix, Ariz., and author of “HELP! I Can't Make My House Payment!”
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5) Shop around for a mortgage. Even a slightly higher rate can mean paying significantly more interest payments over the life of the loan so don't just talk to your existing bank. Consider non-profit credit unions, web sites like bankrate.com and eloan.com, and independent mortgage brokers who can shop around from multiple mortgage companies to find the one that can offer you the best deal. Just try to do all of your mortgage shopping within a 30 day period so it doesn’t affect your credit too much. You can then use this calculator to compare the loans.
To begin, check your credit report to make sure there are no errors on it. Credit reports from each of the three major credit reporting agencies: Equifax, Experian and TransUnion, are available for free once every 12 months. If there are errors, then contact each agency and report the mistake. You can also check your credit score for free with Bankrate. The goal is to raise your credit score before you shop for mortgages.
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