Applying for a mortgage in today’s housing market can prove to be one of the most crucial dilemmas that you will face in your life. First-time buyers might find it a little bit difficult to manage on their own if they haven’t had any prior experience in acquiring a mortgage. Making crucial mistakes on their first buy could prove to be a devastating and costly move that they’ll have to bear for years to come. Here are three steps that can help those who are unprepared in applying for a mortgage.
Assessing your monthly budget
Depending on your monthly income and the price of the property you wish to purchase, money lenders are keen to consider your ability to pay back your debt consistently via your monthly payments. Establishing your budget for the short-term and the long-term can help you gauge if your living expenses will not go over your remaining balance. If they do, then maybe it’s time to reconsider the property you’re eyeing.
Take note of potential unemployment, increase in bills, medical expenses, and just about everything in between that you might need to handle while having your monthly mortgage rate at the back of your mind. Looking back at your expenses also means predicting emergencies such as having enough in your saving to pay for the following six months if ever your life takes a turn for the worse.
Determining your mortgage plan
Once you’ve decided on the amount of the loan you’ll be needing, you need to assess what type of mortgage plan to take. While there are ways to secure a mortgage with bad credit, it’s best to invest for a better track record in the long run. Choosing your mortgage plan can come in three different categories. The Fixed rate, Balloon mortgage payment and Adjusted rate.
Fixed rate mortgages are just as the name implies, giving you a consistent interest rate throughout your lease; this option gives you the versatility in having a preset budget for your loan payments that won’t change.
Balloon mortgages start off with a low, consistent fixed rate on the interest but have a shorter lifespan. You will be charged to pay off the rest of the property’s net value after a few years of paying the mortgage in small increments. Though it’s a better choice if you want to gain ownership of the property sooner, you might have to save up for the big pay in just a few years.
In contrast to a fixed rate, the adjusted rate depends on variable changes in the housing market. Your payment on the first month may not be as much as the next which is a gamble on how the market performs during your contract.
If none of the three is up to your liking, you can always opt to have a government-backed mortgage that offers a low rate to first time buyers and perks to veterans. As with any government application, you’d have to wait quite a while for the red tape to stop kicking at your door.