What is a mortgage?
According to Investopedia.com: “In a residential mortgage, a homebuyer pledges his or her house to the bank. The bank has a claim on the house should the homebuyer default on paying the mortgage.” Your first mortgage is an important achievement and can set up your credit for the long haul.
Preparing for your first mortgage
The first step in securing a reasonable mortgage rate is establishing a high-quality credit score. It is advisable to check the three major credit reporting agencies, specifically Trans Union, Equifax, and Experian. If your score is good to great, your chances of getting a fair rate are pretty high. Conversely, if you have had some credit struggles, you may need to consider rebuilding your credit prior to making such a heavy financial commitment. This is the perfect time to review your debt-to-income ratio and pay off as much debt as you can before seeking a mortgage. Preparing your financial situation could be the most important task you complete before signing for your dream home.
Make decisions now for later
The emotion of purchasing a home can be overwhelming at times and could lead to bad decisions. To avoid bad choices, it is important to write down a plan of approach and consistently follow the plan. Naturally there will be events which will force deviations from the plan, but it is wise to minimize the changes and always consider the long-term impacts of the changes. Always remember to be patient and consider your finances 3, 5, 10, or even 20 years later. Hiring a financial adviser is a decision that can save you quite a bit of money and strengthen your credit score.
Stay on track, pay your mortgage
Consumerfinance.gov says, “The amount you borrow with your mortgage is known as the principal. Each month, part of your monthly payment will go toward paying off that principal and part will go towards interest on the loan.” Timely payments and sometimes over-payments will set you up to refinance your loan and save money on your home further into your investment. A great payment history will also open a gateway to better financing for other avenues such as auto purchases and credit card rates.