The money you pay up front for a house is the down payment. The larger the down payment the greater the savings. Most down payments are a percentage of the purchase price of the home. Down payments often come from either your savings or the net proceeds from the sale of another home you already own. It is important to know that a larger down payment can reduce the amount of your monthly principal and interest payment as well as reduce the total amount of interest you pay over the life of the mortgage.
An important step in securing mortgage financing is a credit check. This is a routine part of the mortgage application process. The lender will order a copy of your credit report. A credit report shows information generally from the past six to seven years. This information may include your historical data such as current and previous addresses, current and past employers, public records including bankruptcies, liens and judgements as well as credit card, mortgage and past loan payment information.
The mortgage lender will use your credit report to see if you have missed payments, carry high balances or in other ways over extend yourself financially. Your payment history is the most important factor and will determine your credit rating. It is very important to review your credit report periodically and check for inaccuracies that may have an impact on your credit score (also known as FICO Score).
Know What You Can Afford
Knowing your monthly mortgage payments at an affordable price range will bring your house hunting into focus. How much of a house you can afford depends on the monthly mortgage payment, down payment and the amortization or length of time it will require to pay off the loan. Use any of the free online mortgage affordability calculators and mortgage payment calculators to show you how much you can afford and what mortgage payment plan is right for you.
Applying for a mortgage pre-approval will save you time by knowing what you can spend before you start looking. It will also protect you against interest rate increases while you are shopping for a home as well as increase your comfort level.
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