A home mortgage is typically the biggest investment of our life. It then becomes one of the most important decisions to thoroughly research. And lenders' requirements are changing in this rapidly evolving housing market.
A home mortgage is typically 30 years in length and will afford people the ability to experience "the American Dream" of home ownership. As we have all seen recently, it can also turn into a nightmare. There are several ways to make sure that the dream stays positive and doesn't sour.
Firstly, as a responsible potential homeowner, it is critically important that you take a very candid and critical look at your finances. A bank cannot do this for you--you must take responsibility for your own financial health.
After evaluating how much of your savings you can commit to a down payment, you have to consider how much of your monthly income is available to meet your new commitments.
It does not make sense to completely drain your savings to buy a house that will continue to cost you more money with unexpected surprises. Even a newly constructed home will need repairs. It's just a fact of life. It is better to continue to add to your savings until you have a good cushion after coming up with the down payment and closing costs.
Closing costs are always part of a home mortgage. The two options you will typically have with closing costs is to pay them up-front or roll them into the loan. Although it is more money out of pocket up front, it is significantly cheaper to pay closing costs this way. If you roll the closing costs into the mortgage you end up financing them over the term of the note, and paying significantly more, considering interest over 30 years. Your credit score plays a huge role in your ability to get a good interest rate. If you have some financial setbacks that have negatively impacted your credit score, then it might be worth considering holding off until your credit score is in top shape to be able to secure the best rate and terms.
There are other terms available other than 30 years, typically 15 years is the other popular option. If you can afford a higher monthly payment, then you might want to consider a 15-year mortgage. Typically, the interest rate is lower and the overall finance cost is significantly lower.
One option to consider is getting a 30-year mortgage, and making extra monthly principal payments. This will effectively reduce your finance charges but not obligate you to a higher payment in the event of an unforeseen problem. Even just one extra payment a year can save a huge amount of money.
When getting a home mortgage, you also need to consider all of the related expenses that go with home ownership. Repairs, taxes, and utilities all add up to a large monthly bill. And all of these expenses are variable, and will likely go UP over the course of owning the home. It is vital as a responsible consumer that you take these expenses into account and provide yourself with enough of a financial cushion to be able to cover the unexpected.
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