Buying a house is more than about finding a property that has all your needs or wants. As taking the plunge is a major financial commitment, you need to focus more on getting a house that you can comfortably afford. This to prevent financial mishaps in the future, which are usually associated with getting a loan or a house that is beyond your earnings.
Getting a loan or house that you can afford is more than about deciding on a specific amount. There are many factors to consider and it is advisable to educate yourself about the lender’s guidelines and qualifications to determine the right size of mortgage you can qualify. This will also help you learn more about your options regarding interest rates and loan terms.
The loan amount approved by the lender
Salt Lake City mortgage lenders note that it all starts with a preapproval. This involves examining your finances to find out if you qualify for a loan, as well as the mortgage amount the lender is willing to let you borrow.
Do take note that the figure you see in the preapproval letter is the maximum amount of loan you qualify for. It is best to go below that amount to avoid any difficulty in making your monthly mortgage payments in the future.
More than just your monthly loan payments
While the main financial component of buying a house is your monthly mortgage payment, this is not the only expense you need to think of. You also have to pay for taxes, HOA fees, homeowners insurance, and private mortgage insurance (if your down payment is less than 20%). There are also other housing expenses you need to budget, such as utility bills, repairs, and upkeep.
You need enough cash reserves
Paying for the down payment and other related expenses may have a negative impact on your savings. This is why you shouldn’t underestimate the importance of having enough cash reserves to prepare for the unexpected. When proceeding with the purchase, it is best to have savings that can cover at least four to six months of your total housing expenses, which include:
Monthly loan payments
Other related expenses
Changes in rates and monthly payments
The type of mortgage you choose can affect your monthly payment and budget. If you choose a fixed-rate mortgage, for instance, your monthly payment will remain constant over the life of the loan. If you pick an adjustable-rate mortgage (ARM), on the other hand, your rates and payments may increase or decrease depending on the market trends. It is best to know the pros and cons of your options before making a decision.
The effects of your chosen loan term
Your chosen loan term or the length of time you need to pay off your mortgage can also affect your monthly payments. If you choose a shorter loan term like a 15-year loan, your monthly payments will be higher, with less interest in total. If it is a longer term like a 30-year mortgage, your payments will be lower, but you’ll pay more interest in total.
As buying a home is a major financial endeavor, it is important to do whatever you can to avoid costly mistakes. Talk to a reliable lender and find a house the fits your needs and finances.