There are a few mortgage loan preparations you have to look into before buying your first house. Remember that buying a house is one of the biggest decisions you will ever make in your life. Not to mention one of the most expensive ones as well. However, it remains to be one of the tops goals people have in their lifetime.
Having your own home helps give you that sense of being accomplished. You get to come home and relax, eat, and sleep in your own place. You do not worry about paying rent every month and having to deal with unsavory landlords every month. The house is yours to design, fi, and even renovate however you wish.
Before you get to that point, there are a few mortgage loan preparations you have to consider when buying a house. Here are a few of them which can help you out when you are in the market looking for a home to buy.
Understand how much you can afford to pay every month
If you buy a house that is way over your budget, you might end up paying more than you can every month. Yes, you have a very nice house with a big walk-in closet and a backyard enough to host a big party. Coming home to a master’s bedroom with a nice view of the neighborhood can make you want to spend a lot of time at home.
However, mortgage loan preparations include taking out a loan which you can pay back. The last thing you need is a being house rich but cash poor. This can put you in a big hole where the time comes you cannot keep up with your house payments. You might either be pulling money away from other obligations or you have been making late payments month after month.
This means that even before you take out a mortgage loan, you need to assess your ability to pay. Find your comfort level in the amount you can put towards the house payment. It is the biggest payment you will make every month but it does not mean you will sacrifice everything else. Be sure that as you make house payments, you are also able to meet other financial payments and savings you need according to your household budget.
Mortgage loan preparations mean planning for closing costs
As you start to think about owning your own home, one thing you need to plan for as well are the closing costs. There are a number of people who forget to budget for this as they are focused on the big numbers. People can be looking only at the huge loan amount, the big monthly payment, and even the long years ahead for repayment.
However, the closing costs might surprise you and catch you off-guard. The amount averages between 2% to 5% of the purchase price. This means that you might be putting down as much as $10,000 on a $200,000 loan just for closing costs. There are a number of costs you have to prepare for when closing on your loan.
Some of the most common fees include application fees being charged for the mortgage application by your lender. There is also a credit report fee where you pay as much as $30 for your lender to pull your credit score. At times, you might have to pay a year’s worth of your homeowner’s insurance premium at closing.
Setting money aside for the downpayment
OneUnited Bank President and COO Teri Williams was asked what the biggest mistake of people when it comes to personal finance. She shares with the Bay State Banner people overlook the power of saving money. If you are all set to start a new life, one of the mortgage loan preparations you need to focus on is saving for the downpayment.
One of the reasons to save for the down payment and at least 20% of the purchase price is to avoid paying for the Private Mortgage Insurance or PMI. This insurance is meant to protect not you but your lender in case you default on your payments. This additional monthly payment might put you over what you originally budgeted for.
PMI can be as much as 1% of the loan amount. This means that for a $200,000 loan and a downpayment, it can come to $2,000 a year or about $166 a month. This could have been used for something else such as saving for retirement or even for your emergency fund. It makes it all the more important to try and save for a considerable down payment to help you lower your monthly mortgage payment.
Check your credit score
You might think that there is no use in checking your credit score since your lender will already do it for you. There are even times when it is a part of your closing costs. However, one value of knowing your score before you take on a mortgage loan is that you get to prepare it for your loan application in order to get a good rate. This is why it is a big part of mortgage loan preparations.
This is because the higher or better your credit score is, your lender can give you a low-interest rate. This can lead to lower monthly mortgage payments. If you are thinking about the cost, you have to know that you can get free copies of your credit report which is the basis for your score. The Federal Trade Commission shares that you can request for one free copy of your credit report every 12 months from the major credit reporting bureaus.
Check the neighborhood first before moving in
You might find a house that you like and as soon as you walk inside it, you instantly fall in love with the property. It is everything you have dreamed of and more. The house seems perfect and even the smallest details just make you want to buy it as soon as you can. You want to start moving into the house and cannot wait to spend a lot of time in it.
However, one thing you need to understand is that more than the house, you have to get a feel of the neighborhood as well. The house might be what you have been looking for but if the people around it might not match your personality. You could be looking for a quiet place to live in but the neighbors could be young families who prefer a loud and vibrant environment.
It is also possible that you are looking for a house to start a family but the neighborhood you have chosen seems to have a lot of retirees. Your children might grow up without much playmates in your neighborhood. That being said, it is important that you get to check the place you will be living in to make sure it fits your personality, lifestyle, and goals in the future.
Mortgage loan preparations might seem like a tedious task with a lot of things on the list but they are important to help you lower the chances of making a mistake. Purchasing a home by taking out a mortgage is one of the biggest investments you could ever make in a lifetime. This is why it makes a lot of sense to ensure that you prepare as best as you can for it.