1. Is a 30 year mortgage ideal?
The majority of first-time home buyers will choose to have a 30-year mortgage because that is what is offered. Even though shorter-term mortgages are more expensive, it will enable you to pay your mortgage faster. If you can afford it, it will save you money on interest costs in the long run. If you are not able to qualify for a shorter term (15 year) mortgage, you can settle for a 30 year mortgage but pay more money each month as if it’s a 15-year mortgage. This will help you pay your mortgage faster and avoid a lot of interest charges.
2. Saving for down payments
If you have a rough estimate of how much the home that meets your needs will cost, now is the time as a first time home buyer to start saving for a down payment. A home that is more expensive will have a higher down payment. Having excessive money as down payment can help you purchase a home that is priced higher than what you qualify for. It is a good idea to avoid buying a new car or swiping/opening a new credit card.
These major expenses and activities may affect your credit, leaving you devastated at the end of the day if your mortgage loan does not go through.
3. What you qualify for vs what you want to afford
The golden rule is that your total housing cost should not exceed 30% of your gross income. The smaller the number the better. Do not put yourself in a situation where you will be poor and struggling financially. Do not make life harder than what it is already. Self employed people may appear not to be financially stable on paper, but they may be eligible to purchase a home using tax incentives available. There are a few other
exceptions to the rule if you have a large amount of money in your savings account, even if you have a low income you can pay off your mortgage at any time or pay down a huge percentage of your mortgage so that you are left with a mortgage payment that you can afford based on your income. Small business owners have the flexibility to allocate more money to their housing cost than what their income indicates.
4. How much down payment should you put down
In the past, a 20% payment or more was required to purchase a home, however first time home buyers can purchase a property with little or no money down using few government incentives that are based on availability. If you cannot come up with any kind of down payment, you may be at a disadvantage if you are not able to provide any kind of down payment. Money is needed to pay for insurance, taxes, and mortgage payments. As a homeowner, money is also needed for any repair or maintenance issues that may arise. All these involve money that will need to be spent constantly. A good advice is to work with your financial planner to determine how much you safely can put down towards the down payment. A low down payment may count against you because you will be required to pay PMI (PMI is Principal Mortgage Interest) which will count against your debt to income ratio. To avoid this issue, you may need a first and second mortgage or HELOC as a substitute.
5. Getting ready for a mortgage
As a first time home buyer, getting your ideal home may be a challenge.However you may be able to buy a house with more space than you need. Taking stock of your assets, debts, income, and taking into chiconsideration your lifestyle will determine largely how much your mortgage will be. Taking all those into account will help you stay within an affordable mortgage payment. Checking your credit scores regularly can help you identify any issues with your credit so you can fix it before it gets out of hand. A bad or not so good credit can have a negative impact, making you pay more on your mortgage payments when having a higher interest rate.