Finally, you have reached that point in your career when you can afford to buy a house. Sure, your monthly salaries can cover the down payment and interest.
But is it sustainable, though?
Because you’re too excited to find a place to call your own, you might make the wrong decision and end up not able to pay for a loan. You wouldn’t want to wake up one morning and realize you’re going to spend the rest of your days eating crackers for dinner in your new home.
When choosing which type of home loan to apply for, Altius Mortgage says, “There is more than one type of loan that you can get. Getting the right one can ensure that you are able to afford your monthly payments, your interest rates are as low as possible, and you can get the most home for your money based on the down payment you have available.”
It’ll help if you knew the options available when it comes to your mortgage rates:
- The fixed-rate mortgage, also referred to as the traditional mortgage, will have a fixed rate and fixed monthly payments spanning ten to 30 years. This is recommended for homeowners with outstanding credit.
- The adjustable-rate mortgage, or ARM, features a low introductory rate for a fixed number of years before the rate adjusts to the declared market rates at the time. This is recommendable to homeowners who plan to stay for a short period of time, or for market rates with depreciating value.
- Interest-only loans distribute payment towards the interest and the principal balance. The monthly payments are lower due to the homeowner only paying the interest.
- Reverse mortgages are only open to homeowners over 62 years of age who are interested in turning the equity in their home into profit.
- The buydown mortgage allows a homeowner to reduce the interest as they pay down the total principal of the initial loan.
Taking Care of your Credit
Housing prices are rising, and getting a mortgage is becoming difficult. For a mortgage to be approved during the last quarter of 2015, a resident of Chicago needed an average FICO credit score of 747. In 2000, the required average was only 680.
“The appetite for taking risk has disappeared”, says Laurie Goodman, director of the Urban Institute’s Housing Finance Policy Center. Lenders are being cautious, and credit availability is going down. Borrowers with sketchy financial and credit standings aren’t worth the risk. In Utah, significant penalties await defective paperwork and broken rules.
In talking to your lender, be honest with your financial history. Your mortgage broker or banker will discover these discrepancies. To maintain a healthy-looking bank statement, hold off on large purchases or opening new credit lines until after a deal is closed. And lastly, pay your bills on time, as lenders regularly check to see that your finances are at a pristine standing.