There’s More to It Than the Price
Before You start house hunting. This is the part where you’ll need some cash upfront, so be sure to budget for it. Purchasing a home is never just about the price tag!
- Property taxes vary by area, and most mortgage lenders will require you to escrow your property taxes, which will increase your monthly payment.
- Your lender would require you to buy mortgage insurance if your down payment is less than 20%.
- The down payment is usually between 5% and 20% of the home’s purchase price.
- Closing costs, which include items like title insurance, valuation and inspection fees, escrow deposit, and loan origination fees, are usually about 3% of your loan amount.
Your current budget will change
Consider your current monthly spending. Food, insurance, gas, rent, utilities, and caring for any dependents or pets account for a significant portion of most people’s income. Budgeting will become your best friend until you have a monthly mortgage payment to make.
Your weekly movie outings, occasional Starbucks, and weekend shopping sprees can become less important to you than paying your mortgage bill on time, so make sure you outline and discuss all of your current expenses appropriately.
You may wonder how you’ll deal with and adapt to these changes. Decide what are the most critical aspects of your lifestyle and what can be sacrificed. There are a few options available to assist you in keeping track of your finances.
To ensure that you can afford your mortgage payments, you must decide on a price range for your new home that makes sense for you based on your monthly spending.
Does it prevent you from saving for other things or achieving your life goals?
Isn’t it true that your key life goal is to become a homeowner? Why are you here in the first place? Other goals, on the other hand, should be kept in mind if they are important to your future.
- Do you see yourself relocating to a different city or state in the future?
- Do you have a monthly contribution to a fund/401k?
- Are you putting money together to pay for your children’s college education?
These are just things to keep in mind so you don’t spend too much money on your home and neglect to save for other important goals. Fortunately, the internet’s vastness offers a plethora of websites to choose from if you’re looking for a way to keep track of your objectives.
Your Credit Score: Something You Should Know But Probably Don’t
Before you start fantasizing about your wrap-around porch, and stainless steel appliances, make sure you have a credit score that banks will be proud of.
In general, a higher credit score means a lower interest rate, which means more money in your wallet.
Before you start looking for a home, talk to a few banks to get pre-qualified for a mortgage based on your credit score. You’ll be able to get an idea of how much you can easily afford this way before jumping in.
Fortunately, there are many online tools for determining your credit score. For a free credit report and a $1 credit score, go to freecreditreport.com.
Evaluate various mortgage options based on the requirements
Before you start falling in love with that ranch on in your dream neighborhood, you should really look into what types of mortgages are available to you depending on your financial situation.
The bank will assist you in determining what types of mortgages and interest rates you can handle, allowing your agent to quickly narrow down homes in your price range.
You should look into a Federal Housing Administration (FHA) loan if you don’t have enough money to put down 20%.
If you don’t pay your mortgage, the FHA guarantees to reimburse the lender. Lenders would encourage you to take out a big loan with an FHA loan because they know the government will pay it back.
- Drawbacks: FHA loans will not be sufficient if you need a large sum of money; there are less loan options; and you must pay a mortgage insurance premium, which will raise the mortgage rate.
- Advantages: You can get an FHA loan with as little as 3.5 percent down (or less in some cases), a credit score as low as 500, and no income criteria. In addition, a qualified donor will be able to offset the entirety of your closing costs and down payment with a donation.
If you have enough funds for a 20% down payment but don’t want to deal with the budget constraints or mortgage insurance premiums associated with an FHA loan… You’re better off getting a traditional loan.
- Drawbacks: You’ll need a larger down payment and a better credit score, as well as higher mortgage rates.
- Advantages: Conventional loans have a wider range of options, can be used for any form of property, are available from almost any bank, and you won’t have to pay the insurance premium that an FHA loan needs.