How Much Loan Can You Afford?
First time home buyers are faced with a maze of financial decisions. It’s a daunting task to sort through mortgage rates, loan amount, other commitments, and monthly payments to determine exactly what your price range will be for your future home. Although bankers and real estate agents are there to assist you, it helps to start with a general idea of your bracket. Consider the following things when trying to make sense of your own cents.
First of all, how much of a down payment will you be able to make? Down payments are the reason why first time home buyers are well advised to sack away cash for years before they purchase. The more you can put down up front, the less you have to borrow… and the less interest you’ll accumulate.
Once you figure out your down payment, now you need to check how much loan you are eligible to borrow. You’ll need to get a feel for what kind of interest rates you could get on a home loan, as well as how much you can expect to pay in installments, legal fee and stamp duty and other misc cost. Once you get an idea of what those numbers, you can get a rough idea of what kind of properties you can afford and where you can get those properties. This is where bankers and real estate agents can be particularly helpful.
Keep in mind that when you do apply for a mortgage, the bank will also investigate your age, wages, your expected earnings in the near future, other commitments such as car loans and any other outstanding debts. All of this will factor into the calculation of how much you’re able to borrow, and what kind of rates you will receive. If the loan for which you’re approved turns out to be less than what you’ll need for the home you’re considering, you will either find have to find a different bank and try to recalculate your terms, or find a less expensive property.
If you’re considering purchasing a home in the future, start cleaning up your credit now. It’s also a good idea to start saving for your down payment well in advance. Having a good credit score and cash in the bank are the two most effective ways to get a good loan with a decent rate. If you don’t have those two things yet, you should consider putting off your home purchase until you do.