Things You Need to Know Before You Get a Mortgage
When you’re a first-time home buyer, you may find yourself moving quickly from happy daydreams of your new kitchen to complete confusion as you navigate a major financial decision. Buying a home is the biggest financial move most people will make in their life, and it’s important to be informed about the process before you fall in love with your dream home.
How Much Home You Can Afford
Your monthly payment should be no more than 28% of your income. If you have no additional debt, you may be able to afford 30%, but going any higher isn’t recommended. Look at your finances and figure out what your maximum monthly payment can be. It’s also worth looking ahead. If you anticipate one spouse taking a few months off for a new baby, or you are planning on a career change, you may want to factor in how that will change your income down the line. Once you have a monthly budget, you can use a mortgage calculator to figure out what homes you can afford. These calculators will consider your estimated down payments, length of loan, and interest rate. Some calculators can even help you estimate how much your property taxes and homeowner’s insurance will add to your bottom line. Once you know what you can afford, you’ll know what homes you can look at.
What Kind of Mortgage You Want
A 30-year, fixed rate mortgage is standard, and it’s safe. You’ll know exactly what your payments will be and when you’ll pay off your home. However, there are options, and it’s worth exploring while you’re researching your down payment. A 15-year mortgage means larger monthly payments, but you’ll finish paying in half the time, and will pay considerably less in interest over the life of the loan. Some buyers choose to take both a first and second mortgage to cover down payment costs and still fit within their budget. For certain buyers, interest-only or adjustable rate mortgages may be an option. However, these options have a significantly higher risk, so talking with a mortgage professional about your particular situation is important. First-time home buyers often qualify for special programs, like an FHA loan. Talking to a mortgage professional can help you understand what programs to look for and which will be a good fit for your unique situation.
How Much You’ll Need to Have Available Now
Although the mortgage will account for most of the purchase, you need to make sure you have enough accessible cash available now. The standard down payment of 20% can be a significant amount of money. There are plenty of programs that will allow for a smaller amount up front, but even 5% of a $200,000 home is $10,000. In addition to the down payment, you’ll need cash for closing costs, inspections, and moving expenses. Once you have your monthly budget and your price range, take a look at your savings to see how much work you’ll need to do. Bonuses, tax refunds, and automatic monthly savings can help you grow that nest egg.
How To Get Your Finances in Order
Check your credit report and look at not only your score, but everything on the report to verify the accuracy. If there are any blemishes or inaccuracies, the time to clean them up is now, not after you’ve applied for your mortgage. While you’re going through the home buying process it’s important not to make any financial moves that will impact your credit. Car purchases, credit cards, and store financing can all impact whether you’ll be approved during the process. Put those other purchases on hold while you focus on getting the mortgage.
Buying a home and shopping for a mortgage can be intimidating for first-time home buyers, but taking time to research the process will help you know what to expect and how to prepare. It’s important to work with a mortgage company with integrity and experience. Contact us today if you have questions about finding a reliable mortgage company. We’re here to make your homeownership dreams a reality.