Down Payments

A monthly mortgage can seem like enough of a financial responsibility on its own, but there are many factors involved in home ownership that affect its fiscal feasibility. If you’re in the market for a house and are wondering how your income will stack up against the rest of your expenses, here’s how to determine a home cost that’s reasonable for you.

Determine Your Down Payment

Before you start with anything else, you’ll want to determine the amount of money you can put down so you can estimate your monthly payments. The traditional amount for a down payment is 20% of the home’s purchase price, so if you don’t have anything close to this amount it might be worth waiting a little longer so you can minimize your payments and the amount of interest or mortgage insurance you’ll be paying in the long run. Each person’s situation is different, and there may be programs available with less than 20% down. This is an excellent question to pose to your trusted mortgage advisor.

Calculate Your Monthly Budget

If your mortgage cost already seems high, it will definitely be worth carefully calculating your monthly expenditures. Instead of a wild guess, take the time to sit down and calculate what your costs are including food, utilities, transportation and any other monthly necessities. Once you do this, it’s also very important to add any debt repayments you’re making to the mix. The total amount of your estimated mortgage costs, debt payments and living expenses should give you a pretty good sense of if your mortgage is viable in the long term.

Don’t Forget About The Extras

When it comes to purchasing a home, many people envision that they will be eating and sleeping their new home so don’t pay attention to all of the additional costs that can arise with living life. A new home is certainly an exciting, worthwhile financial venture, but ensure you’re realistic about what it entails. If you’re planning to go back to school or have children in the future, you’ll want to add a little bit of extra cushion in your budget so that you don’t have to put your other dreams on hold for the sake of your ideal home.

It can be very exciting to find a home you feel good about, but it’s important before making an offer to realize the amount of house you can afford so you don’t find yourself in a hole down the road. If you’re currently on the market for a new home, contact your trusted mortgage professional for a personal consultation.

If you’re looking for a new home, you’ve probably heard lots of advice about down payments. About how it’s okay to just have a five percent down payment – you’ll still get approved. About how you should make the down payment as small as possible to avoid cash flow problems.

In truth, you’re actually better off making the largest down payment you can possibly afford. Even if you have to slice up other areas of your budget, save for a few more years before you buy, or take a second job on the weekends, it’ll be worth it in the end. Here are just four reasons why you should make the largest down payment possible.

You Can Avoid Useless Insurance Premiums

Although you can buy a house with as little as a five percent down payment, it’s in your best interest to make a much larger down payment if you can. Mortgage insurance premiums can be as high as one percent of the loan’s value, which means until you’ve invested 20 percent of the home’s value in equity, you’ll have to pay an extra one percent every year. If you pay at least 20 percent of the purchase price upfront, you’ll be able to avoid having to get private mortgage insurance – so you keep more of your money in your own pocket.

You’ll Pay Much Less Interest

The less you have to borrow, the less you have to pay back – for more reasons than one.

When you take out a mortgage, the interest rate applies to the principal amount that you owe – and over time, the interest can run on top of interest, quickly outpacing the original sum. Having a larger down payment means the interest applies to a smaller sum. And that means it accumulates slower and ends up being a smaller amount over time.

You’ll Have More Ammunition In A Bidding War

Offering up a larger down payment is also a great way to make sure you get your dream house, especially if it’s a popular property with multiple offers. The seller isn’t just going to consider who offers the most money – they’re also going to consider which buyer is most likely to get a mortgage. After all, failing to get a mortgage is one of the most common reasons why real estate deals fail.

If you can show that you’re able to make a larger down payment, you’ll have a better shot at getting a mortgage – and that means sellers will prioritize you over other buyers.

You’ll Get A Great Start On Building Equity

Your home equity is equal to the difference between your home’s fair market value and the amount of debt invested into the home. If you don’t have enough equity in your home and home prices in your neighborhood fall, you may find yourself in a situation where you owe more money on your home than it’s worth – a phenomenon known as negative equity. By making the largest possible down payment you can, you’ll have a great head start on building your home’s equity – which may help you profit if you decide to sell in the future.

Buying a house isn’t easy, but making the largest down payment you can afford will give you a great financial head start on home ownership. Want to learn more about how to afford the home of your dreams? Contact your local mortgage professional today for practical advice to help you maximize your down payment.