How Much Home Can You Afford?
Buying a new home is an exciting time, but it can also be very confusing. The first thing most homebuyers need to know is: how much home can they afford? There are a lot of factors to consider, such as income, down payment, expenses, and credit history. By getting this first question answered, you will be on your way to finding the home of your dreams.
How are Mortgage Payments Calculated?
When looking for a home, it’s important to know what your budget is. A $500,000 home may be beautiful, but if your budget is only $150,000 you are way out of your limit. So, how do you know which homes to look for? Mortgage companies, such as Easy Mortgage Lend.com are here to help. By giving them a little of your financial information, they will tell you exactly what your budget is so you can find your dream home. Here’s what they’ll ask for:
- Total household income: You’ll tally up all revenue streams coming into the home for anyone signing the loan. This includes spouses or domestic partners and any applicable co-signers. Income includes (but may not be limited to) money you receive from a full-time or part-time job, money from a side hustle, alimony or child support, investment revenue, and any form of disability or retirement income.
- Monthly expenses: The mortgage company will ask for information regarding all secured and unsecured debts and any other expenses you have. This includes any alimony or child support you pay and housing expenses.
- Estimated housing costs: This will include things like property taxes, homeowner’s insurance premiums, mortgage interest rates, loan repayment terms and down payment. (The most popular loan repayment for a mortgage is 30 years, but there are other options available.) The mortgage company helps calculate most of these rates based on public information, credit reports, and trends.
Once they have all the required information, the mortgage company will let you know how much you are pre-approved for and the terms of the loan. They will provide the monthly payment and repayment period as well.
To get a pre-approval, you have the option of going through a mortgage lender or a mortgage broker. Lenders supply the loan directly to the borrower. Brokers, on the other hand, work on behalf of lenders. They gather information for pre-approval in the same way lenders do, but they work with many lenders to get you the best deal on the terms of your loan. It’s important to note that not all mortgage brokers work with the same lenders, so you’ll need to do your homework before selecting one. You will likely have to pay a commission for their services, as well.
What if You Don’t Have a 20% Down Payment?
Without a 20% down payment, you can still get approved for a mortgage loan. The mortgage company will, however, require you to buy mortgage loan insurance. This protects the lender if the borrower defaults on the loan. There are circumstances where you could be denied mortgage loan insurance. If the total purchase amount of the home exceeds $1 million, or the loan doesn’t meet the mortgage loan insurance standards, you may be disqualified. By putting less money down on the loan amount and charging a mortgage insurance premium, the overall monthly payment increases.
Once you are pre-approved, make sure you ask the lender how long your approval and interest rate are good for. You can also find out how to extend the pre-approval period, if necessary.
