Purchasing your first home is one of the most exciting yet overwhelming times in a person’s life. When you sign a mortgage, you are making a ten, fifteen, or thirty year commitment with a lending institution. This can be a very stressful financial commitment. Instead of being buried alive with an enormous mortgage payment, simple budgeting can allow you to purchase your first home easily.

Using a mortgage calculator

A mortgage calculator is a valuable tool that a first time homebuyer should use. With a mortgage calculator, first time homebuyers can accurately figure out the maximum amount that they can afford to pay each month based upon their salary and budget. A mortgage calculator can be used to determine what your mortgage payments will be each month, as well as to ascertain how much you will have left over in your monthly budget plan.

How to figure out your budget

When you are composing a budget, there are several things that you need to take into consideration. First of all, you need to add to your budget the cost of utilities, the mortgage or rent payment, an auto payment, car insurance, student loan payments, credit cards, groceries, health insurance and other financial expenses.  It is important, when preparing a budget, to allow room for financial emergencies. This may mean a temporary layoff, loss of a job, illness or injury. Budget calculators help to bring it all together for you.

As you are calculating the figures, you may want to evaluate a month’s worth of receipts, allowing you to have the most accurate figure of the amount of money that you spend each month. Also, as you are figuring out your budget for your mortgage payment, it is wise to choose a mortgage payment that is lower than the maximum amount you can afford. This allows room for increases in homeowner’s insurance and property taxes each year. Once again, a mortgage calculator can help you to determine the amount of taxes and the cost of insurance for the entire duration of your home loan.

Ways to stretch your mortgage budget

There are a few simple ways that you can lower your mortgage payment and increase the amount of money in your budget.  The first way is to put down a large down payment. A down payment of 15% to 20% of the cost of the home can significantly reduce the amount of your monthly mortgage payment. Also, a down payment of 20% or greater may allow you to skip the mortgage insurance required by some lenders. That alone can reduce your monthly payment dramatically. One way to save for a larger down payment is to invest a portion of your money into a high-return low-risk investment.

If you are ready to purchase your first home, you can increase the amount of money that you have to spend on a mortgage each month by paying off your higher interest rate credit cards. By paying off your credit cards and other debts, you are improving your credit score, which may lower the interest rate charged, allowing you to pay off the mortgage quicker.

Both of these are ways to allow greater flexibility in your budget, allowing you to afford a higher mortgage payment. Remember, before you sign on the dotted line for a mortgage, it is critical to calculate your budget and accurately determine if the set mortgage payment will work with your budget plan, instead of being a burden.

Preparing for and Obtaining the Best Loan for Your First Home

You are ready to head down the path towards home ownership.  This is a very thrilling time in a person’s life!  However, in order to make your home a true dream, it is important to take preemptive steps that will benefit you for the long-term.      
In order to receive a great home loan, it is essential that first-time homebuyers implement several easy strategies to improve their credit score, as well as the value of their down payment.  Both of these actions will allow a first-time homebuyer to receive a home loan that has better terms. It can be as simple as three easy steps to obtain the best mortgage for your first home.

Simple ways to improve your credit

Many of us are haunted by our credit score. It seems as if everything we do affects the amount of our credit score. Many people will tell you that there is no way to improve your credit rating, but this is far from the truth. There are several actions that a first-time homebuyer should take.

One of the best ways to improve your credit score is to reduce your other debts. This may include high-interest rate credit cards, medical bills, an auto loan, and more. The less debt that you have, the higher your credit score will be. A high credit score can improve the terms of your mortgage, including the rate.  By just paying off a handful of debts, you can quickly improve your credit score.

It is recommended that at least three months before a first-time homebuyer applies for a mortgage, they should begin to improve their credit score. It is very important that a person obtains a report of their credit history. Did you know that the major credit agencies will provide one free credit report per year? This will allow you to see if there are any false charges on your report, and it also will allow you to see what debts you can easily pay off.

A second way to improve your credit score is to pay all of your bills on time, each month. Each time that you pay a bill late or miss a payment, this negatively affects your credit score. In fact, one of the negative credit scoring criteria is “number of late payments”. By making payments on time, your credit score can improve. By performing these simple acts, a first time homebuyer can improve their credit score and obtain a home loan that has better terms.

How to increase the down payment

One of the best ways to obtain a great home loan is to put a large down payment down on the home. For many first-time homebuyers, the down payment can be a real problem. If you don’t have a family source of money or a nest egg already, five years before you are ready to purchase a home, you should put a sum of money in a savings account or in a series of CDs. Both of these types of accounts will allow the first-time homebuyer to increase the amount of money that is saved towards the down payment.

When you are saving money for a down payment, make sure that you do not touch the money. Sometimes it can be very tempting to withdraw the money for a vacation or to purchase new furniture. However, the longer that the money is kept in the account, the more interest the account will earn.  An account that has compound interest can help a first-time homebuyer easily earn an extra $500 per year.

If a first-time homebuyer puts $5000 in a compound interest account, you will earn at least $500 a year in interest, assuming a ten percent return and that earning power will increase every year through the power of compound interest. This is an easy way to increase the amount of your down payment and to obtain the best home loan to meet your financial needs.