With numerous options to choose from, deciding which mortgage is best for your personal situation can be an overwhelming process. Whether you’re buying your first home—or even your third or fourth—the last thing you want to do is fall in love with a house you can’t afford.
While you may have gone online and used a mortgage calculator to figure out that you can afford a home close to $350,000, it’s important to take your full financial picture into consideration.
One way to determine exactly how much you can borrow is to consider three times your annual household income and subtract your debts (college loans, car loans, etc.). You’ll also want to meet with a mortgage professional before you begin looking at homes to get an accurate reading in regard to what you can truly afford. Knowing this figure ahead of time will save you heartache in the long run.
Lenders consider a variety of things before deciding your qualifications on a mortgage, including one’s employment history, credit history, FICO score and debt. You should know going into the meeting what these figures are to make the process smoother.
You’re also going to need to know the type of mortgage you want. Most first-time buyers will opt for a 30-year loan, but if you have the money, there are benefits to getting a 15-year-mortgage. A fixed-rate mortgage is for those concerned about where rates may go, but adjustable-rate mortgages are popular these days because of the low interest rates. Just be wary that interest rates can rise at any time, and your payments will rise with them.
Another factor to consider is how much of a down payment you want to place on the home, as this number will affect your mortgage. There are special mortgages available for those who qualify that allow for a buyer to put little to no money down, but this will cost you more in interest payments in the long run. For some buyers, this may be necessary because they may not have the equity needed to make a down payment.
There are also special loans available for those in the military, so keep this in mind if applicable.
To ensure the entire process is as smooth as possible, meet with a mortgage professional early in the process so that you understand your options and have a good sense as to what’s available. By collecting all the proper paperwork ahead of time and knowing one’s true worth, it can make the mortgage process much easier for everyone involved.
By Keith Loria