When someone asks "can I afford to buy a home?", he or she is often thinking of the short term of 1 or 2 years.
Instead, try thinking of the long term. In many parts of the country, over a period of several years, homes increase in value by at least 5% a year. So, home owners have an asset that is growing. At the same time, if their mortgage has a fixed rate, their housing expenses are staying relatively constant, unlike renters, who are seeing an increase in housing expenses generally of 3% to 5% a year. So, in the long term, home owners have less money going out and an asset increasing in value.
Why should you pay for someone else's mortgage? In a sense that is what you are doing when you are renting. Contact your mortgage professional to see what price range of home is right for you and let your money work for you and not your landlords,
Investing in a home is still one of the safest places to invest your money. Real estate will almost always appreciate and give a good return on the initial investment.
When considering to buy a home and figuring out how much you can afford, it is a good idea to sit down with your spouse and calculate your total monthly expenses. This should include all of your monthly bills such as car payment, credit card payments, cell phones payment, personal loans, cable/satellite television bills, etc... This way you can calculate how much you can comfortably afford to spend on a monthly mortgage payment and not fall into the trap of buying a home that is out of your price/payment range. Many homeowners and potential homeowners can qualify for homes and monthly payments that are much, much more expensive than what they can comfortably afford, while living the same lifestyle that they are used to. Please remember just because you can qualify for a $400,000 home does not mean you have to buy a $400,000. Buy a home because it meets your needs and most importantly it is within your budget comfortably. Allowing your home to own you instead of you owning your home has been an increasing trend over the past few years with the availability of all of the new mortgage programs and competitive underwriting programs available out there.
Can you afford to continue renting? Home ownership is the most popular investment tool. With a mortgage you gain equity be paying down principle as well as through property appreciation. You can also use the interest paid on your mortgage as a tax deduction. To determine if you can afford a home you need the experience and expertise of both a good loan officer and a good real estate agent. Together they will help you determine how much you can afford and if there are homes in your area that meet your preference and price range.
Many brokers are able to perform a rent vs. buy analysis that will not only compare your monthly payments, but also the potential tax savings, the appreciation of the home, and other factors you may not have considered. In many cases it is actually cheaper in the long run to purchase a home than to continue renting.
Comparing Interest Rates - Shopping for mortgage rates can be frustrating and the financing process can be very confusing with an array of jargon, products, guidelines and policies. Allow a Mortgage Broker to shop for you. A Mortgage Broker can find you the lowest rate in the fraction of the time it would take you to shop on your own. In general, it shouldn't cost any more to work through a Broker than it would to go to the lender yourself.
When comparing interest rates, also pay close attention to fees. In some situations it makes sense to have a lower origination fee and a higher interest rate. Compare other fees as well. If .125% lower rate only saves you $15 a month, but the fees for that loan are $600 higher, it will take you 40 months to break even.
Keep i mind that you interest rate is generally tied to your credit score. If your credit score is low or you have collections and other negatives on your credit report do not expect the low rates you hear advertised on radio and Television.
Mortgage professionals can give you only their best estimate for the day. Your rate is not guaranteed until the rate is locked. Your loan officer can lock your rate only after all the necessary borrower information is gathered.
If you do choose to shop make sure to compare "apples to apples". Since interest rates fluctuate daily you want to make sure you are comparing quotes from the same date to make sure that market conditions are the same for all quotes you receive.
If you are shopping for a rate, you should try and do it all on the same day. Interest rates can change from day to day, rates can even change a couple times during the day.
When comparing interest rates keep in mind that the lowest rate isn't always the best deal. Reducing the term of your loan from 30 years to 10 years will give a lower rate, but are the payments still affordable? Also remember that there are numerous closing costs to consider and the interest rate doesn’t matter if you don't have enough cash on hand for closing costs. While comparing interest rates is a smart financial move don't forget that the interest rate is just one facet of your new mortgage.
When shopping around for interest rates and comparing interest rates, make sure you ask if the rates being quoted are fixed or not. If you are looking for an adjustable rate mortgage, make sure you ask specifically how long the rate is fixed before it adjusts. Also, if you are shopping for an adjustable rate mortgage make sure you know what index is being used to base your adjustable rate mortgage on and what the margin is. The index is the rate that your adjustable rate is based on and is the rate that actually fluctuates up and down, causing your mortgage interest rate to adjust. The margin is a fixed item that influences how high above, or sometimes even below, the index your interest rate will be. For example if the index being used to calculate your adjustable rate mortgage was Prime and lets say Prime was 8%, and the margin was 2% you would have a fully indexed interest rate of 10%. Then lets say 12 months later your interest rate adjusts again and now Prime is 7.5%, so your new interest rate would therefore be 9.5% (Prime, 7.5% + Margin, 2% = Fully indexed interest rate). Your mortgage professional can better explain this in person. This is why it is pertinent to compare "apples to apples". You could be quoted the same start rate on a mortgage, however one quote may be based on a loan where the margin is 4% and the other may be based on a loan where the margin is 1%. This could potentially be a huge difference to you in interest rate and monthly payment.