4 Basic Mortgage Questions Answered
A: Deciding how much house you can afford is a personal decision. Many factors come into play. How much can I borrow? How much can I put toward my down payment? What size monthly payment can I afford? There are no black and white answers to these questions. It?s a matter of give and take. If you plan on a 30 year mortgage, you can probably make a lower down payment (or perhaps no down payment at all) and still manage the monthly payments. If, on the other hand, you plan on a 15 year mortgage, you'll probably want to make a larger down payment to keep your monthly payments in line with what you can afford.
Q: How large a down payment can I make?
A: Many buyers look at their cash on hand as their only source for their down payment. This simply is not the case. One way to fund or partially fund a down payment is by using a gift. Parents, grandparents and other family members are often eager to help by making a cash gift toward the purchase of your home. There are also down payment assistance charities that can help you. And, of course, if you are selling a home, the equity you've built up can be applied to your down payment
A: When determining what size monthly payment you can afford, you'll want to consider what other monthly expenses you have. Tangible expenses such as car payments, day care and utility bills, all play a role in how large a monthly payment you can afford. There are also the intangible expenses or lifestyle expenses that you'll want to consider. Things such as dining out, travel and when you buy your next car can affect how much you can afford. Are you willing to curtail or delay some of these expenses in order to afford a larger monthly payment?
Q: How much can I borrow?
A: This is a question you'll want to get answered before you begin your home search.
Why Pre-Qualification is Important
It's valuable to visit with a mortgage professional early, even if you haven't decided the kind of house to search for. What for? Perhaps it's difficult to understand how they can help even before you begin to calculate your offer.
A mortgage professional will help determine how much of a mortgage loan you can afford and how much money you can borrow, by walking you through pre-qualifying. This process outlines your financial situation - your debts, income, career, and down payment money, among other things; it's short and basic. You will receive a Pre-Qualification Letter if you qualify, which says that the mortgage company is confident you'll qualify for a predetermined amount of mortgage dollars.
Some benefits open to you after you've found your next house, and have achieved pre-qualification power. First, it lets you know how much you are able to offer. Being pre-qualified also will make your offer look even better to the home seller, as if you were bringing them a suitcase of cash! They need not worry that that they're wasting their time if you do not be able to qualify for a big enough mortgage loan. The seller won't worry if he can count on you to qualify for your mortgage in the amount you'll need. Your qualifying for your needed mortgage loan amount won't cause them concern. They have a virtual guarantee that they can trust your buying power.