Shopping for a house is exciting, but it comes with a lot of considerations. Finding a mortgage that works for you tops the list. There are many lenders to choose from and helpful down payment plans for those who need assistance, which means it’s beneficial to shop around. Before you hit “send” on that mortgage application, there are some facts that you should know.
If you’re ready to start shopping for a mortgage, it’s important to know what it entails. There’s more to buying a house than just financing the payments. Knowing how much you can afford and what expenses to prepare for puts you in a better position when you’re finally ready to submit that application.
Here’s How to Prepare for a Mortgage Stress-Free!
Industry Standards for Affordability
When you apply for a mortgage, lenders consider several factors in addition to your credit score. The first thing they’ll look at is your annual income, whether you’re applying as an individual or a couple. This figure is weighted against any outstanding debts you have creating your debt-to-income ratio. The industry standards for affordability look for mortgage payments to exceed no more than 36 percent of your income.
Mortgage Calculators: How Much House Can You Afford?
When shopping for a house, it’s important to stay within your budget, but how do you calculate your budget to begin with? Most lending sites offer a mortgage calculator that collects specific information such as your current income, debts and how much you have available in savings for a down payment.The calculator then uses a predetermined formula to estimate how much house you can reasonably afford considering these factors.
This is a good starting point at the beginning of your home search, but you’ll want to visit a lender for pre-approval to confirm these figures prior to putting in an offer on a listing.
Choosing the Right Lender
There are many lenders who participate in mortgages, including mortgage lenders, banks and credit unions. Banks are the most popular lenders, especially if you like to keep all of your financial instruments such as bank account, credit cards — and you guessed it, your mortgage — within one institution.
Credit unions tend to have lower rates for their members, but may not be able to offer government-sponsored loans such as Freddie Mac or Fannie Mae. Mortgage lenders specialize in one financial instrument, and because of this, everything is done in-house and they usually offer faster closing times.
Other Factors to Keep in Mind
Buying a house isn’t as simple as signing your mortgage papers and calling it a day. It’s a lengthy process that can take months to find the right house and go through the financing and closing. When it comes to the financial side, you’ll need to be prepared for additional costs that can quickly add up, including:
- An emergency fund in case you lose your job or have health issues that keep you out of work for an extended period of time.
- Moving costs to rent a truck and/or pay a moving company to relocate you.
- Real estate agent fee, which is typically paid by the seller, but could be negotiated as part of your mortgage.
- Maintenance costs for fixing or replacing items in your house such as your hot water heater, carpeting or appliances.
- Yearly property taxes will be included in the mortgage while you still carry one, but you have to be prepared for them to increase throughout the years.
While there’s much more that goes into shopping for a home and getting a mortgage, the entire process is actually an exciting event. Being prepared financially and intellectually gives you an advantage, and everyone can use that when they start out.
