If one of your major goals is to purchase a home, you might have a lot of questions. Specifically, questions about getting a mortgage are potentially at the top of your list. Before you start applying for home loans, ask yourself the following seven mortgage questions to determine whether you’re ready to become a homeowner.
Mortgage Question 1: What’s Your Budget?
The first step in getting a home is deciding how much you can afford. Your lender will look at your income to determine how much you qualify for with a home loan. However, only you know what amount you feel comfortable paying each month and over the loan’s term. You can get approved for a home loan with payments as much as 28 to 30 percent of your monthly income or even higher. However, financial experts recommend keeping that number at 25 percent, including maintenance costs. Lower incomes don’t automatically disqualify you from homeownership- with proper budgeting, you can own a home with little income.
Mortgage Question 2: How Much Do You Have for a Down Payment?
Most loans require you to have a percentage of the price of the home as a down payment. The amount of cash you have on hand will help determine how much you get approved for. Having a higher down payment will also lower your monthly mortgage payments. Traditional loans usually require a down payment of 20 percent. If the price of the property is $300,000, you would need to come up with $60,000. Lender programs exist to reduce the amount of down payment you need, but your monthly payments will be higher.
Mortgage Question 3: How Much Money Do You Need for Closing Costs?
Besides the down payment, you will also need to budget money for closing costs. Sometimes, you can get the seller to pay the closing costs, but it’s less likely in a seller’s market. Closing costs vary, but you should budget for 2 to 5 percent of the home’s price.
Mortgage Question 4: What Is Your Credit Score?
Lenders will check your credit history and credit score to determine whether to approve your application for a mortgage. You should have an idea of what your credit report says about you before applying. A lower credit score will make it difficult to get approved for a home loan. If you are approved, you’ll likely pay a higher interest rate than someone with an excellent score. With a higher credit score, you can get better terms for your mortgage. You can check your own credit without impacting the score by contacting any of the three agencies: Equifax, Experian, and TransUnion.
Mortgage Question 5: What Is the True Cost of Home Ownership?
When you’re looking to purchase a home, you may focus on how much your monthly mortgage payments will be. While this is the main cost of owning a home, it’s not the only one. You also need to budget for taxes and insurance, unless they are wrapped up in the loan. Don’t forget the cost of maintaining the property. You may get a warranty for the home to cover major expenses like appliances and the HVAC. However, other costs come up, such as a leaky pipe or plumbing fixture. You should plan to save money each month for these unexpected expenses.
Mortgage Question 6: Do You Qualify for Any Home Buyer Programs?
Buying a home isn’t easy for everyone, but several programs exist to make it simpler. For instance, veterans can get special rates and a lower down payment with a VA Loan. First-time home buyers may qualify for FHA loans. With this loan, you usually only need to come up with a down payment of 3.5 percent, which is helpful for first-time home buyers who may not have the extra cash on hand. If you choose to buy a property in a rural area, you might qualify for a USDA loan, which provides a loan up to 100 percent of the cost of the property.
Mortgage Question 7: Is It Cheaper to Rent or Buy?
Often, the cost of a mortgage is less than what you’re paying in rent. When you put these two numbers together, buying a home seems to make the most sense financially. However, you must also figure out the cost of upkeep and caring for your home, which is the landlord’s responsibility when you rent. Purchasing a home helps you save money when the combined cost of your mortgage and maintenance is lower than the cost of renting.
Want More Answers or Guidance?
Once you have answered these questions and determined that you are ready to purchase a home, your next step is to find a mortgage broker who will guide you through the process. The right lender will make this process less stressful by taking care of the financial side of the purchase and explaining the steps to you.
When you’re ready to be guided through the homebuying process, or have additional questions or concerns, connect with a local independent mortgage broker in our nationwide Broker Directory today!