Congratulations – You have finally decided to buy a home. The next obvious step is to decide on mortgage. A mortgage is a home loan, where the property works like a security for the loan. If you are unable to repay your debt, they will sell the house and take their money. It’s easy to guess why homebuyers need to focus on mortgage terms and conditions before taking a call. In this post, we will take a look at aspects that eventually should influence your decision.
Is the property worth it?
Mortgage will impact your financials for at least fifteen years or more, so you have to first decide if the property is worth the time, money and effort. For example, if you plan to sell the house immediately after five years, it doesn’t make sense to get a loan. Consider the investment and if you can actually manage payments and expenses in the long run. To get a better idea of what you will have to pay each month, you can check for calculators like https://onqfinancial.com/financial-tools/mortgage-calculator.
How good is your credit score and debt to income ratio?
Lenders want to know if you can realistically pay the loan amount each month, which also includes cost of insurance. The mortgage payment shouldn’t be more than 28% in the ideal case, and the debt to income ratio shouldn’t be more than 38%. Lenders can accept debt to income ratios up to 43%, but that’s not always the case. The credit score is equally important. A score of 640 is considered to be decent for mortgage, but every person’s financial situation is different.
Read the terms and conditions
You can choose between fixed and adjustable interest rates, depending on the pros and cons. Some experts believe that a low-initial adjustable rate is the ideal choice, but many prefer a fixed-rate mortgage, where the payment is fixed per month. Term of the loan is another thing to take note. If you don’t want to pay a big amount in interest, go for a 15-year term instead of a 30-year one.
Your employment status also matters in deciding on the mortgage. You should be able to manage your other expenses effectively even with the loan. Don’t rush in buying a home; instead, check what works for your financial condition and see if some of the debts can be repaid to improve the credit score. Negotiate with your lender to get the best rate!