October 7th, 2009
Making Your Dream Home More Affordable For You
Buying a house is probably one of the most exciting purchases you’ll make in your lifetime. Maybe you feel that it is time to buy because the housing market is stabilizing, your family is growing, you need an extra tax deduction, or you are just ready to own your own property.
The process can be complicated, long, and sometimes difficult, so before you set out to explore different neighborhoods to stroll through open houses, think first about how much money you have for a down payment, what you can afford in a monthly mortgage payment, and how your credit score may affect the financing fees your lender will charge to help determine your affordability in becoming a home owner.
For starters, you’ll need to determine how much savings you have to put towards a down payment on your new home. Typically Home buyers deposit a down payment, or payment from the buyer’s savings that goes towards the home’s purchase price, and the rest is financed through a home mortgage loan. Now, the larger your down payment, the smaller the loan you’ll need to purchase your new home. It’s important that you are realistic on what size of down payment you can afford so you can get an accurate sense of what you can pay comfortably every month for the next 30 years.
You know your down payment, now it’s time to sit down and do some monthly budgeting. How much money do you have for a mortgage monthly payment? A good rule of thumb many lenders use for budgeting cost of a home mortgage is around 30-35% of your pre-tax income. This is a good place to start, but you’ll need to do some extra math to include the property tax and homeowner’s insurance that you will also be paying for along with your mortgage. Your actual monthly mortgage payment is generally a combination of your loan payment, property taxes, and home owners insurance. You’ll have to consider all of these pieces to make sure a new home fits within your budget.
Now that you’ve got an idea of your down payment and what loan size you can afford, make sure you can qualify for that type of loan. When you go to a lender to get approval for a home mortgage, your credit score will have a large impact on the APR the lender charges you for your mortgage. Generally speaking, the better your credit score—the better your loan terms. Consider getting pre-approved for a home loan so you know the APR you may have for your loan. The difference between a 750 and 650 credit score can be as significant as a change of one percentage point on your APR, such as a 5% APR to 6% APR. That 1% change in an APR may not look like much, but for a $200,000 home, a 1% APR increase can cost an extra $1,300 every year of a 30-year mortgage.
If you find the homes you want simply aren’t affordable, think outside of the box. Some interesting ways to make or save money include: renting out a room in your home, turning it into a duplex, living near a subway or public transportation station to trim transportation costs, using casual carpool to cut commute costs entirely, doing gardening or home maintenance and improvement projects yourself, growing your own fruit and vegetables, being conservative about heating and electricity, considering buying furniture on craigslist or at twice-used stores and fix it up, pledging to have a garage sale every season, and more! There’s lots you can do to afford your dream home—a little financial planning, ingenuity, and creative thinking can make any place go from a house on the market to your very own home.
Related posts:
- Getting The Right Mortgage for Your Dream Home White picket fence or penthouse suite, country or the city, two story brownstone or sprawling ranch house, whatever your taste...
- Zero Down Payment On A Home Mortgage! If you are an employee (uniformed, civilian, or retired) of the Department of Defense, or are a family member of...
- Why It’s a Great Time To Rent Rather Than Buy A Home Owning a home is still the American dream, but in today’s unpredictable economic climate, it’s becoming more advantageous to rent...
- Paying Credit Cards with a Home Equity Loan The majority of all citizens in Americans are carrying some kind of credit card debt. Unfortunately, there are so many...
- Short Sales: A Short Guide What Is It? A short sale occurs when a homeowner can no longer afford mortgage payments and the bank agrees...
