Home Sweet Home… But Can You Afford It?

You’ve finally found your dream house and are ready to commit but there’s that question of home mortgage affordability. Don’t let this thought scare you away just yet. Find out if you can go ahead and buy that house at last.

1. Know how much you have and how much you owe. How much income are you receiving at present? Is there a chance that it would increase? What will be your financial situation several years from now?

How much money do you owe to creditors? How much monthly payments do you make? Can you still afford to shell out more money after the bills are paid?

You’ll need a consistent source of income that can cover your mortgage and other expenses. Try to foresee possibilities that you’ll need to factor in: a new child, changes in the job, back-to-school plans and cash-flow five or several years from now. Be prepared to be in it for the long haul.

2. If your debts are well managed, then you can afford a home mortgage. The lender will approve your loan more quickly if he sees that your debt-to-income ratio is well within manageable range.

The lender will ensure that your payments will only total 33% or less of your monthly gross income. Otherwise, pay off some of your debts before applying for a home mortgage.

3. Decide which one you prefer: fixed, adjustable or balloon rates. Paying a fixed rate is a more popular choice because it can protect you from surges in interests while paying the lowest rate possible for an agreed period of time may be lighter on your budget, but your mortgage payment can go up later.

4. Interest rates will go up and down depending on the activity of the market. If you can read and understand market trends and economic indicators, you can save a lot of money.

5. Be prepared to pay a downpayment. Typically, it is about 20% of the total price. A house priced at $200,000 will require a down of $40,000. There are also loans with low or no-downpayments, but it will cost you in terms of equity in the long run.

6. You have enough money saved that’s equivalent to at least three months’ monthly income. This will help cover unexpected expenses that could affect your mortgage payments.

There is no fixed answer on the affordability of a home mortgage. It will all depend upon your income, debt, interest rate and other factors. If the home mortgage fits into your personal situation, then you can definitely afford it.

Home Mortgage Loan Types

Choosing the mortgage that is right for you is essential when one is involved in the process of home purchasing. Thus it is important that all options are understood.

Basically, the two things one should consider when considering a home loan is what type meets best your home purchasing needs as well as which loan offers the most ideal schedule for repayment.

The fixed mortgage rate loan types

Fixed rate home mortgage loans have an interest rate that basically remain the same for the whole life of the loan.

These payments have predictable monthly fees yet you are immune to any rising interest rates. Therefore, your interest and principal payments will not increase.

The adjustable home mortgage rate

Mortgages that are adjustable in rate have rates of interest that adjust in a periodic manner as based on the exiting conditions of the market.

The rate is initially fixed during the period of its introduction (anywhere between one year to a decade) and is usually lower compared to a mortgage that has its rate fixed.

After this period, the rate then adjusts every year or about semi-annually as based on the index of the market, however it cannot go beyond the pre-determined cap adjustment.

Jumbo home mortgage loans

The amount given out on this type of loan exceeds the amount established by corporations. Since jumbo home mortgage loans are sold and bought on a scale that is smaller, they have rates that are a little high compared to other type of home loans.

B/C home mortgage loans

These types of loans are given to those borrowers that have filed recently for foreclosure or bankruptcy or those who have late payments on their reports of credit.

The purpose of B/C home mortgage loans is the offer of temporarily financing to applicants until they could qualify for type A conforming financing.

Government home mortgage loan programs

One type of government loan programs is VA loans. These types of loans are definitely guaranteed by the US Department of Veterans Affairs.

This allows service persons or veterans to acquire home mortgage loans with terms that are favorable (usually in the absence of a down payment).

RHS home mortgage loan programs

RHS means Rural Housing Service if the USDA or the US Department of Agriculture. This type of loan guarantees residents in the rural area with very minimum costs for closing. Down payments are also unnecessary.

All in all, there are a lot of home mortgage loan programs available. It all depends on your needs, wants and means.