Financing the purchase of a new home can be a very confusing and complicated experience but there are steps you can take to make it easier. You have already taken the first step and decided that you are ready to buy but now what? Where does the rest of the money come from? Unless you’re very lucky to have saved enough money to purchase a home out-right, you’ll probably need a mortgage. But you may ask yourself, "How much mortgage can I afford?" The following article provides basic steps and advice towards getting your first mortgage.

What is a mortgage? A mortgage is a loan to help pay for real estate. It has a specified repayment structure including payment periods and interest rates. Most often, the collateral for the loan is a lien against the property being purchased. In the event that the borrower is unable to repay the mortgage, the lender can legally claim the property as theirs.

So now that you know what it is, you are probably thinking about how to get a mortgage. Unfortunately, obtaining a mortgage is not quite as simple as asking to borrow a pen although it has become easier in recent years. Before walking into a mortgage broker’s office or the bank, it is a good idea to organize your finances.

When you apply for a real estate mortgage loan, the lender you work with will want to know your ability to make payments and will need to be able to ascertain whether you will be a trusted investment so you will need to examine your financial situation. This will help you figure out how much you can afford (assuming a person can put about a 20% down payment, they will typically be able to afford something that is up to three times their gross annual income). The basic mortgage payment formula consists of figuring out your monthly gross income and your current debt. You’ll need to figure out your gross (total) income per month and then subtract the amount of debt you have, which include anything long term such as car loans or student loan payments. A mortgage payment is traditionally 28% to 40% of your monthly income but if you have outstanding credit, you may be able to increase the percentage (speak to your lender for more information regarding this). Then take your monthly gross income and multiply it by 40% (or .40). This will give you an idea of how much mortgage you can afford and help you look for homes in your price range.

Next, make sure your credit history is in good standing. If your credit is in bad standing, it will be harder for you to obtain a mortgage and/or a good interest rate. Do not panic if your credit history is not in the greatest standing – just take steps to make to make it better. Make sure to make all of your payments on time and in full. It is better to do this before applying for a mortgage.

Once you have your credit history in good standing and your finances organized, you are ready to find a lender. Remember to find a lender who will work with you and your finances to obtain the mortgage. You can ask your financial institution for recommendations, real estate professionals, look online or in telephone books, or ask your friends and family.