There are a number of benefits to owning your own home: it provides housing security for you and your family; the equity in your home offers you a form of a savings account in lieu of paying rent to someone else; there are tax benefits; and, let’s not forget, the sense of pride in home ownership.
5 Critical Steps for Home Buyers:
How to Avoid Paying Too Much for a Mortgage
For most people, the ambition to acquire their own home is their most important goal. It is the primary influence and motivation for how they conduct their business, financial, and personal lives. The majority of people will have to finance their home by obtaining a home mortgage from a lending institution.
1. Calculate How Much Home You Can Afford
With millions of homes to choose from, it can be daunting if you start house hunting without narrowing your search. To set yourself up for success, the best place to start is to consider how much home you can afford.
Consider Your Income
Many banks will require your monthly costs not exceed a percentage of your income (i.e. 28%). That means if you earn $50,000 per year, your total monthly housing costs should not exceed $1166 (28% of your monthly income). But it's more than just your income that the bank will look at...
Consider Your Debts
In addition to income, if you have recurring debts, the total monthly payments on existing debt plus new payments for your mortgage may not exceed a certain threshold (for example 41%). Using the example above that would mean that if your monthly debt payments are in excess of $541 per month (bringing your total debt of $541 + $1166 = $1708 or 41% in total).
To put it simply, someone that makes $50,000 before taxes should probably target a home that is $250,000 or no more than 5 times their annual salary.
Consider The Down Payment
Most lenders prefer a down payment of 20% or higher to qualify for a conventional loan, but if you don’t have 20% there are still loan options you might consider where you can put down less! For many would-be buyers, the down payment is a big factor that influences how much they can afford.
2. Compare Down Payment Options
Nearly all mortgage loans and lenders require some amount of cash as a down payment. The amount you've set aside for this could determine the kind of mortgage you qualify for. It will also impact how much you can afford to borrow for a home.
Loan Types with Lower Down Payments
Most lenders prefer a down payment of 20% or higher to qualify for a conventional loan, but there are more than 2,400 home buyer assistance programs in the United States that offer down payment help in the form of grants, low-interest or deferred loans, forgivable loans, and other programs. Help with closing costs may also available.
3. FIND THE RIGHT HOME FOR YOU
Now that you know how much you can afford and how much you’ll need to save for your down payment, you’re ready for the fun part: Finding the right home for you and your family.
Before you begin the quest towards purchasing your home, there are factors to consider: How big is your family? What neighborhoods are you willing to consider? Are schools a factor? Is a single-family home a requirement or is a condo an option?
Realistically, be prepared to make some compromises.
To help you determine the features you want in a home– (number of bedrooms, a fenced yard, granite countertops, a garage, etc.) fill out our Home Features and Amenities Questionnaire– decide whether the house or the neighborhood matters more to you, or whether you’re willing to make a longer commute in order to own a home with a larger lot.
Its best to make these kinds of decisions before beginning the search for your new home.
4. MEET WITH OUR MORTGAGE LENDER
Let Us help you invest the time into finding the mortgage that is right for you. After all, you're going to have your mortgage for the next 30 years. It's worth prioritizing.
There is market volatility in the mortgage market so the sooner we sit with you and our lender, the odds are good you can lock in your rate.
*(Mortgage quotes can vary based on your down payment, credit history, income, assets, and debt.)
5. Get Pre-Qualified
Ok, you've saved your down payment, this will determine the type of loan you should pursue. After we compare rates we will request a pre-qualification letter.
Getting Approved
Many lenders offer what is called a "verified approval" after they verify your income, assets and credit this "verified approval" can give you the same strength as a cash buyer.
In today’s competitive housing market, it is not uncommon for a seller to receive multiple offers on their home. Having a pre-qualification letter in hand could be the difference in your ability to purchase the house you desire. This shows the seller you are serious and provides you with bargaining power, this could give you an advantage over other buyers.
Locking Your Rate
This approval can lock your rate for up to 90 days while you find your new home.
In today's market, interest rates may change between now and when you are ready to close on your home.
If you received a verified approval and lock in your rate, once you've found your new house, if rates are up, your rate stays the same. If rates have dropped, you automatically get that new lower rate. Either way you win!