How much can you afford?
The rule of thumb is that the home you buy should be no more than two to three times the amount of your annual household income. When getting a mortgage, it's important to remember that the monthly payment is not the only cost of owning a home. Some of the other expenses you'll incur include homeowner's insurance; needed repairs to plumbing, electrical, heating and air conditioning units, roof, and appliances; landscaping that includes fences as well as plants and lawns; furniture; window coverings; etc.

Add up the following items to get a true picture of what your new home will cost monthly:

Your other current monthly bills, including all credit card and loan payments, car payments, etc.;
Your projected utility payments
Property maintenance;
New furniture;
Floor coverings if you plan to change them; and
Cost of any new appliances you'll need.

By being realistic about your total monthly expenditures in the beginning and monthly, you'll be sure that you aren't over-extending yourself.
To determine what your monthly payment might be, use our mortgage calculator.
Pre-Qualifying
The worst thing that can happen when you begin home shopping is to find a home you want and then find out you are not able to get a loan to buy it. The purpose of pre-qualification is to give you an idea of what your credit worthiness is in terms of mortgage loans. Many realtors will only work with pre-qualified clients. Pre-approval, on the other hand, means a particular lender guarantees you a loan for a certain amount of money, usually for a thirty-day period.

The pre-qualification process includes the realtor or lender asking you about your job, your total annual income (including child support, alimony or other income), the amount you pay monthly to creditors, and how much money you have for a down payment. Always answer the questions honestly, because the next step involves getting a credit report from major credit bureaus. If you leave out information when you answer the questions, it will be found on your credit report. Based on all the prequalification information, you will know what price home you can afford. If a lender does the pre-qualification, it can issue you a letter of pre-qualification, which shows the seller of the home you want that you are credit worthy.

Pre-approval for a loan means that you are guaranteed a certain amount of mortgage money based on your qualifications. By getting pre-approved for the loan, the actual process of closing can be expedited, because you don't have to wait for a lender to approve you. This comes in handy in a real estate market where there are more buyers than sellers or when a seller needs to sell a house quickly because of a transfer or other sudden change in circumstances. Pre-approval also increases your offer on a home in terms of value to the seller, because the seller won't have to worry about whether you will be approved for a loan.

When you go in for pre-approval or pre-qualification by a lender, you will need to take your last year's tax return, current pay stubs, and any other documents that prove your income, including divorce agreements that show how much alimony and/or child support you receive. You should also take in the last three months of your checking and savings account bank statements. This is to prove to the lender that you actually have the funds available for a down payment. Make a list of all your monthly bills to carry with you.

For a free pre-qualification, visit F.A.I. Mortgage Corp. here.

Rates vs. Points
It is important to know the difference between interest rates and mortgage points before you apply for a mortgage loan. Interest rates reflect the amount of interest charged on mortgage loans over the life of the loan. A lower interest rate means lower monthly payments. There are two main types of points: origination points and acquisition discount points. Origination points are the fee you pay to the lender and may include some closing costs. Acquisition discount points are the amount of prepaid interest you pay the lender when you take out a loan. Each of these points is equivalent to one percent of the total amount being borrowed and lowers your interest rate by one-eighth of a percentage point. By understanding points and what they represent, you will be able to make a wise decision about your mortgage loan.

Points can work to your advantage in terms of the interest rate you'll be charged. If you're going to sell your home in the first five-seven years you own it, you'll want to shop for a loan with fewer points. If you plan to stay in your home for at least seven-ten years and have additional money besides the down payment, paying additional points will lower your monthly payment.

Usually you have to pay all points along with the down payment, but some lenders will finance points with the loan. Though some lenders advertise low interest rates, the points on their loans may be higher.

Imperfect Credit?
Here are some tips to help you get a mortgage if you have less than perfect credit.

Pay off bills
Pay as many bills as you can, particularly credit card bills or personal loans that appear on your credit report. Your credit score will go up if you have less debt.

Do not take on new debt
Put off going on a vacation and charging it to your credit card. Buy your new or used car after your mortgage loan closes, not before. Avoid taking on any additional debt before you buy your new home.

Clean up your credit report
Order a copy of your credit report and analyze it carefully. If you have debts that are not yours, debts that you have paid off and but show as unpaid, or debtors who have reported that you made late payments, contact all three credit bureaus and dispute these items. Then contact the debtors and dispute them in writing, not by telephone. All of these actions will increase your credit rating, but it may take up to four months. Put off buying your home until you are satisfied with your credit report.