Buying a home can be an intimidating experience, especially for first time homebuyers. It is likely going to be one of the biggest individual expenses you have in your life and can last decades for you.
People that have a mortgage spend nearly $1,100 more per month on owner costs for housing than those without a mortgage.
Most mortgages can take as much as 30 years to pay off. So, something that can be tough to figure out so early is if you can really afford to take out a mortgage.
This is what you will have to keep in mind.
This will be a big factor in how much money you with have to pay on a mortgage and how much interest there will be attached to it. Some types of loans will require as little as 3.5% down.
That might be great if you want to buy a home at all costs but it can cripple you financially in the future. The recommendation is to try to put down at least 20% down for the value of the house.
The more money you can use as a down payment, the less your mortgage will be. This means that you can either have either less per monthly payment, less time to pay off the mortgage, and more than likely less interest to pay off whatever route you choose.
Another factor for how much your mortgage will be is your credit score. The higher the credit score, the less you have to put down for certain loans.
For example, an FHA loan requires just 3.5% down if your credit score is 580 or better. However, you may need to put 10% down if you have less than that for a credit score.
Not only does this affect your down payment requirement but also can affect your mortgage rate. Even a 100-point difference in credit score can add up to about $744 per year difference in mortgage payments.
So, make sure you have a good credit score if you are considering buying a home one day. View here to learn more options if you do not have the highest credit score.
Finally, your income will be a factor if you can qualify for a mortgage. Let’s say for example that your household income is about $60,000 per year.
The normal average expenses per month for a homeowner with a mortgage are about $1,600 per month. So, you figure after taxes that at least 40% of the income is going towards a mortgage.
It can put you in questionable territory for a lender if you can afford this, especially if you have little money saved for a down payment and a low credit score. So, you will need to show that you have a good chance of increasing your income, or figure out what percentage of your current income can go towards paying a mortgage.
Take Out a Mortgage
Owning a home is the American dream. You can get help to take out a mortgage if the number required feels intimidating to you but make sure you review the factors above before you start the process of buying a home.
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