01 Mar 3 Questions to Answer Before Getting a Home Loan
Do you think you are finally ready to take the plunge and get a mortgage? Before you sign on the dotted line, you need to ask yourself a few questions. Your answers will let you know if you are ready or if you still have some work to do before you commit yourself to a home loan.
What does my credit score look like?
Your credit score won’t just impact your ability to get a loan. It will also impact the interest rate that you pay. Let’s look at some numbers so you will understand how important your credit score is. For this example, let’s look at the mortgage interest rates for June 23, 2017.
If you have a FICO score of 760-850, your annual percentage rate (APR) would be 3.565 percent. That means you would pay $1,358 on a $300,000 fixed APR loan.
However, if your credit score is 620-639, your interest rate would balloon to 5.154 percent. You would pay $1,639 a month. That is almost $300 more a month.
If your credit score is low, you need to see if it can be repaired. Check for items that shouldn’t be on your report and get rid of them. That will put you in the position to get a better interest rate on your loan, which means you will have a lower monthly payment.
Am I financially ready for a mortgage?
Many people are so caught up in the idea of buying a house that they fail to realize that they aren’t financially ready for it. Before you commit to taking on a mortgage, look at your financial obligations and make sure that you can continue to meet them. You also need to make sure that you have an adequate savings account in place, along with an emergency fund. You shouldn’t touch either for your down payment. You never know when you might need that extra money. What if you move in and your air conditioner breaks down? You don’t want to sit in the heat, but you might have to do that if you deplete your savings and emergency funds to buy the house.
Have I considered the true cost of home ownership?
Your home costs more than the sticker price. When you look at the cost of home ownership, you likely think it all comes down to the principal and interest payments, but it is actually much more. First, think about the insurance and tax payments you will have to make each year. Add those figures to your budget to make sure you can cover them. You also need to think about maintenance and repairs. When you rent, your landlord covers the cost if the AC breaks down or if the roof needs to be replaced, but those tasks will be on your shoulders now. You also need to consider lawn maintenance. Some landlords cover this, but it will be your sole responsibility if you own a home.
How much should you figure you will spend on maintenance each year? Anywhere from 1 percent to 4 percent of the cost of the home is the going rate. Of course, if you are handy, you can cut costs by fixing things yourself and handling your own landscaping.
Buying a home is a big decision. Answer these questions so you know if you’re ready to take the plunge. Then, if you are, you can start shopping for that new home. Once you find what you are looking for, you can finally make an offer and sign on the dotted line. It will be one of the most exciting ventures of your entire life.