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Many factors determine how much home you can afford. Here’s how to figure it out – before you fall in love with your dream home.
It’s fun to dream about everything you might want in a home – think waterfall shower, walk-in kitchen pantry or patio bar.
But when you’re ready to make that dream a reality, before you go house-hunting, you’ll need to figure out how much home you can afford. Many factors, like your down payment, property taxes and interest rate, go into determining that number.
Bell Bank Mortgage has a handy calculator that computes the most expensive house you can buy based on the highest payment you can afford. (It does not indicate whether you would qualify for the loan.)
Consumer Reports recommends trying to limit your monthly mortgage payment to 25% of your take-home pay to make sure you have enough money to set aside for an emergency fund.
Your down payment is the amount of money you pay the seller when you sign the sale agreement. It’s a common misconception that you have to put 20% down on your mortgage. With more than 20 percent down, you don’t need to add private mortgage insurance to your monthly payment. And a larger down payment reduces your monthly payments. But there are programs available that allow for down payments as low as 3%.
Mortgage points and fees are not considered in this calculation. Read this article to learn about mortgage points and whether you should pay them.)
If you’d like more help, one of our mortgage bankers can walk you through the process. It’s a good idea to meet with a mortgage lender as soon as you start thinking about buying a home anyway.
A mortgage lender will talk with you and help make sure you’re on the right track to meet your buying goals. You can review your credit, down payment options and discuss programs available. Plus, when you meet with a mortgage lender for a FREE pre-approval before looking for a home, real estate agents, builders and sellers will know you’re a serious buyer who knows what you can afford.
Having that pre-approval ensures you won’t miss out on being a contender for a home if you happen to see one you love and want to make an offer right away. Most listing agents won’t even entertain an offer without a pre-approval. Plus, it makes the initial house search easier when you know how much home you can afford.
Follow this guide for an easy road to pre-approval.
It might seem easier – or more convenient – to shop for your mortgage online. But there are 3 big advantages to working with a local, reputable lender on what is likely one of the biggest purchases of your life.
There’s something to be said for working with a lender who cares about you – not just your loan – and who will walk you through the mortgage process, providing unequaled personal service along the way.
With so many factors determining a mortgage interest rate, it can be confusing to understand whether you’re getting the best possible rate. No matter what current interest rates look like, make sure you do your homework before sealing the deal.
1. It's a great time to buy a home – and keep in mind that waiting can be costly. When interest rates go up by just 1 percent, the cost of a home can rise by tens of thousands of dollars.
When comparing loans, it’s important to look at the APR (annual percentage rate) and interest rate – even if you’re quoted the same interest rate from different companies. The APR is the rate calculated when the fees associated with making the loan are added to the original loan amount. This is important because the fees charged can change from lender to lender, and the fees associated with the APR can vary as well, so the APR may not be the same even if the interest rate is. The APR shows you the true cost of the loan over the life of the loan.
Read this article for more about deciding whether to buy a home when mortgage rates drop.
2. It’s also important to ask about an origination fee – that’s the fee a lender can charge to process the loan. Bell Bank Mortgage’s no origination fee program can save qualified home buyers thousands because they’ll need less cash to close. (Keep reading to learn how to save for closing costs.)
If you’re talking to others about interest rates, keep in mind that the rate one person gets isn’t necessarily the rate someone else will receive. Many variables go into determining an interest rate, including:
Closing costs – the fees charged when you take out a home loan – vary greatly, but they average between 2% and 5% of the home’s purchase price. On a $200,000 home, that’s roughly $4,000 to $10,000.
That’s a chunk of change that can seem prohibitive, especially if you’re already burdened with car payments and student loan debt. But it doesn’t have to keep you from owning a home.
There are down payment assistance programs to help first-time homebuyers. You can also save on closing costs at Bell Bank Mortgage, which does not charge qualifying borrowers an origination fee.
1. Pay yourself first
2. Use a “virtual piggy bank,” such as Bell’s ChangeSaver program
3. Track what you spend
If you don’t track your spending or follow a budget, it’s too easy to impulse buy. If you have a budget, are there places where you can cut costs?
4. Keep your goals visible
Going out to lunch or a movie can seem a lot more fun than brown bagging it or watching a video at home. But in the end, being able to pay your closing costs and get into a new home is a lot more fulfilling. If you feel deprived at not being able to treat yourself to a smoked butterscotch latte, it helps to be able to see and touch a tangible representation of your goals.
Following all of these tips, you can save roughly $4,000-$6,000 in just 12 months. It will take dedication, but when you unlock the door to your new home, won’t it be worth the sacrifice?
Your loan is not just another deal to us. We understand it’s a dream of home ownership that could unlock a future of possibilities.
At Bell, we treat our customers how we would like to be treated. When you work with us, you’ll benefit from our highly competitive rates, wide variety of loan programs and reputation for exceptional service, integrity and on-time closings.
Every step of your financing is handled in house, which means faster answers, fewer headaches and peace of mind.
Built on a solid foundation of doing the right thing means we put our clients’ best interests first, always.