|
Don't build yourself a
mortgage mountain. It's fine to want the best home you
can afford, but be certain that it is comfortable
affordability. Although you may find certain mortgage
lenders who will stretch your qualification ratios (the
ratio of your total mortgage payment to your total
income), the traditional ratios--the mortgage payment as
28% of your income and the total of your mortgage
payment plus your monthly debt payments as 36% of your
income--are good basic guidelines. Get your budget under
control.
Spending some time
reviewing your budget (or developing one if you don't
already have it) and sharpening your money saving skills
can bring big rewards later. A coordinated budget allows
you to get the most home for your money without
strapping yourself while eliminating wasteful spending.
Prepare to pay off small
debts. Having 3 credit card balances, for example, one
with a $125 balance, a second with a $165 balance and a
third with $275 balance will only cloud the picture.
Even though the total is only $565, all 3 will have
minimum payments, credit lines, etc. If possible,
prepare to pay them down to $0 balances.
Begin to gather
documentation. It is not necessary that you have all
items on hand before you apply, but there are a number
of documents you will need eventually and the approval
process will go much smoother if you begin to gather
them now. Examples: W-2's and income tax returns from
the last few years (especially if you are
self-employed), copies of pay stubs, a copy of your
credit report, records of any child support or alimony
(either going out or coming in) and bank statements for
all accounts (checking and saving) for the last several
months.
Don't forget about
closing costs. In addition to your down payment, you
will need to reserve funds for closing costs. Depending
on the type of loan and your location, these costs can
range from 2-5% of the mortgage amount, will be paid in
cash at the closing and cannot be borrowed funds.
Compare. There are lots
of sources for mortgage funds--be sure to make
comparisons. Be certain to compare equal terms, down
payments and loan types.
Consider points when
comparing. Your total mortgage cost will be determined
by 3 factors: The interest rate, the term and the amount
of points.
Get educated! Securing a
mortgage is not all that complicated, but if you
approach it blind, mistakes can be very expensive! Get
as much information as you possibly can...whether from
friends or relatives that have secured mortgages
recently, or from books and articles.
Consider a 15 or 20 year
term. Many home buyers make the assumption that a
shorter term will boost their payments out of reach.
Unless you make the comparison, though, you may never
know if a 15 or 20 year (if available) term could have
been affordable. If you are concerned about committing
to the higher payment of a shorter term, try this
tactic: Mortgage the home with a 30 year loan but have
the lender develop a 15 and a 30 year amortization sheet
for you. Then, do your best to pay the mortgage at the
shorter term payment. It will do wonders for your equity
position!
Adjustable Rate Mortgages
(ARMs). If you are certain that you are going to be in
the house for a short time (less than 5 years for
example) strongly consider an Adjustable Rate Mortgage
(ARM). You will take full advantage of the lower initial
rate and not be as concerned about rate increases since
you will have moved when they begin to take effect.
Tailor your ARM's first adjustment period to the time
you will be in the house.
The
purpose of this newsletter is to stimulate thought for
my clients and those
professionals
with whom I network. If you are a real estate,
estate planning, taxation,
financial
planning or insurance professional receiving this
newsletter, please call my
office
and introduce yourself to me. I'm always seeking
to grow my referral network and
expose
more service professionals to my client base. I
specialize in helping those
individuals
looking to buy, sell or refinance real property in the
Pacific Northwest area. |
