May 25th, 2018 7:06 AM by Jackie A. Graves, President
The leap into homeownership is a big change, especially on your
home is likely the biggest purchase you'll ever make, so it's important to keep
your payments in line with what you can afford.
mortgage eats up too much of your budget, it can affect your long-term
financial security by limiting your ability to save for retirement, pay down
debt or follow other dreams like traveling or starting a business.
general rule of thumb is to aim to have your monthly housing costs add up to
less than 30% of your monthly before-tax income.
that in the country's more expensive housing markets that's hard to do, but
buyers can take steps to help reduce their housing payments.
credit score plays a major role with lenders in deciding the terms of your home
better your score, the more likely you are to get a lower interest rate, which
means you will be paying less over the life of your loan.
A credit score of 750 and up is generally considered excellent
and will make you the most attractive borrower.
buyers with credit scores below 620 tend to have very high interest rates and
risky features on their home loans, according to the Consumer Financial
good credit score doesn't happen overnight.
means that for a couple years before you really want to purchase a house, you
start working to get your score as high as possible, said Nicole Theisen
Strbich, a certified financial planner and director of financial planning with
Buckingham Financial Group. "It's not a switch you can flip."
reviewing your credit report to identify outstanding debt and create a game
plan on how to reduce it as quickly as possible. Be sure to also look for any
errors on your report since they can take time to fix.
comes to getting a mortgage, it pays to shop around.
interest rate for similar loans can vary by more than half of one percentage
point from one lender to another, according to the Consumer Financial
Protection Bureau. And while that number might sound small, it can save you
thousands of dollars over the life of your mortgage.
The difference between the average person's mortgage rate and
the lowest rate available to them came to an extra $300 a year, a CFPB report
found. That means paying an extra $9,000 over a 30-year mortgage.
quotes from a variety of lenders, traditional banks, online-only banks and
community banks to find the best rate, the experts advised.
worry about hurting your credit score: Multiple credit checks from mortgage
lenders within a 45-day window are recorded on your credit report as a single
larger your down payment, the less you need to borrow and the smaller your
monthly mortgage payments will be.
means paying less in total interest.
can put down at least 20% of the home price, you can also avoid paying private
mortgage insurance — which protects the lender in case you default — saving
thousands of dollars a year.
put more money down, you can also avoid paying points and other loan fees.
While you're saving to hit that 20% mark, be sure to keep those
you are planning on purchasing in the next five years, save it in a place not
subject to stock market volatility," recommended Strbich. "Find the
highest interest-bearing account with FDIC insurance. Online banks are a great
option for that."
30-year fixed rate mortgage is the most common home loan, but there are other
try to steer young people away from 30-year mortgages," said John Cooper,
certified financial planner in South Carolina. "The extended maturity on
the loan gives buyers a lower monthly payment, but it may in reality cause them
to buy more of a home than they can afford."
mortgage comes with higher monthly payments, but also has a lower interest
rate, which can bring significant savings.
also mean more of your payments are going toward the principal of your loan and
less toward interest compared to a 30-year loan, so you'll build equity faster.
buyers, an adjustable-rate mortgage could also make sense.
offer a fixed, lower interest rate for a set period of time. But after that
introductory period expires, the rate can rise (or drop) to current rates. So
it's important to evaluate the risks and make sure your income will be able to
cover a higher interest rate.
said an ARM could work for buyers who know they won't be living in the home
long term, or are in occupations where they aren't making a lot of money at the
start, but will see a significant increase in a few years.
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