Mortgage Loans: Check your Affordability
You may be planning to buy a new home and may also be thinking of applying for a home loan. Well, getting approval on your home loan may not be tough, but what you must know is how to manage it well. Check how much loan you can afford to pay off when you want to apply for your mortgage.
You must be totally aware of your finances and have a good idea if you can afford to pay off the loan. Lenders usually watch out for 3 very important things:
- Your credit score
- Your down payment
- Your liabilities as well as incomes
When should you opt for a mortgage?
Take a look at the top 10 factors that help you decide whether you should apply for mortgage:
- Being debt free: If you already have high interest on your credit cards pay them off first. Avoid using credit cards beyond a limit of 10%. If you can be debt free you may apply for a bigger mortgage.
- Saving for retirement: You may have been saving for your retirement through an employer sponsored plan or have been saving for your children’s education. So you may want to think harder whether you can actually manage both your savings plan as well as the mortgage.
- Your credit status: Markets that offer costly mortgage loans may disapprove of you if you have bad credit history. To make a good impression on your lenders maintain a credit score of at least 680.
- Cash reserves: Lenders want you to have enough cash reserves, usually an equivalent of 6 months of mortgage payments besides the down payments and the closing amount. Not all lenders may want you to have reserves but it is always a good idea for emergencies.
- Income appraisal: At your workplace if you can expect a raise in your salary, you may reconsider the amount of mortgage you would get. With a better salary you can raise your mortgage loan level.
- Paying debts with your income: Calculate how much of your income you spend on paying off your debts. If you have lots of debts to pay off, you may be a high risk customer and may not get your loan approved.
- Insurance policies: If you are paying insurance premiums, see if you can manage to pay off a mortgage loan along with this. If you can manage, go ahead.
- Stock investment: Stocks and bonds are good investment options. You may like to mix your options but it is better that you consult an expert and then decide whether you want to invest or get your mortgage.
- Price of home: In a declining market you may want to wait till the prices get better before you buy a home. In a declining market the lenders may reduce the loan amount and if you cannot pay off your mortgage loan you will have a bad impression on your lenders. Selling away your home may not be a good idea to pay of your loan because chances are that the value that you get for your home will be lower than your mortgage.
- Inflation: Can you maintain your mortgage amidst rising prices? If you are in a strong financial condition, your answer may be a strong ‘yes’. Then go for it. You may take an idea from the increase and decrease in price over the last 5 years to be able to get an estimation of what the status can be like in the next 5 – 10 years.
The lender’s market has seen a lot of changes from time to time in order to keep pace with the economy. Factors like inflation, price of home, and fluctuating rates may have an impact on your financial decisions. However, you may not have any control on external factors like these but what you can do is take control of your personal finances, your credit history, down payment and your debt-to-income ratio. With these you can go in for the kind of mortgage that you would like to have.
Useful Resource:
The Mortgage Blog – Greenlight Mortgage Services…A Mortgage Company Run By Property Investors For Property Buyers.