Buying a first Home

Credit History

In today’s unpredictable real estate market, lenders are getting very picky about who they lend money too. They consider many things such as credit card debt, timeliness of payment, and other factors that affect your credit. The current average annual percentage rate on most credit cards is 13.8%, according to Bankrate.com. With the current rate of home loan interest on the average of 6.26%, it is easy to see that credit card holders are paying twice as much in interest on credit card debt than on a home mortgage. Paying off credit card debt instead of putting extra money away for a down payment makes more sense in this case.

Closing costs and down payments

Essentially considered is the ability to pay. A down payment of at least 10% is necessary, and bankers prefer that you pay 20% or more. Some lending institutions may not make the loan for you if you cannot come up with a certain percentage, based on your current financial situation. Paying more than the required 10% is not only to your advantage in keeping mortgage payments at an acceptable level, but helps you avoid the necessity for private mortgage insurance (PMI). PMI is nothing more than insurance for the lending institution to protect itself if you face foreclosure.

Closing costs are the costs you pay for the processing of the loan. They include banker fees, cost of appraisals and inspections, payment to escrow to be used towards taxes and insurance, and title searches. An ethical lender will give you the costs of these fees in what is called a Good Faith Estimate, which should be accurate with no surprises when you go to the closing table. The lender will also notify you in the off chance that changes need to be made to the GFE. Plan to pay around 6% of the initial loan for the total cost of closing a new home.

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