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Buying a home is one of the most important steps in anyone’s life. Determining what kind of mortgage you can afford is a key factor in making a smart decision. Taking care of your and your family’s finances should be a priority. That’s why in this post we share with you the key elements so you know what type of mortgage you can afford without putting your money at risk.
Crunching the Numbers
The first step to follow is to know your budget. Take into account all sources of income you have. From alimony to rental income.
Then you should make a list of all your housing expenses as well as the total down payment, taxes, insurance, and of course an estimate of the interest rate. Remember that it is very important to know the terms of the loan as well as the time in which you will have to pay the mortgage. In general, mortgage loans are paid in 30 years; however, in some cases, there is the possibility of acquiring loans with shorter payment terms.
Finally, list all your expenses. That is to say, the money that month after month you have to take out of your salary to pay your services and expenses in general. In this step, you must be precise since these are the expenses that represent the money that is destined monthly for your basic needs.
There are online tools that allow you to make a calculation to know the budget you have to buy a house. With these types of tools, you can get an idea of how much you could pay your lender each month.
What Kind of Mortgage Can I Afford?
When you’ve set a budget, it’s time to research the types of mortgages out there so you can choose the best option for you. You need to do some research and consult a professional to guide you and help you choose wisely. Here are the most common types of mortgages.
A conventional loan is a mortgage that is not insured by the federal government. There are conforming and non-conforming loans.
A conforming loan is one in which the amount is set and limited by the Federal Housing Finance Agency. On the other hand, non-conforming loans are those that do not meet these guidelines.
One of the advantages of conventional mortgages is that they can be used for different types of homes. You can purchase a primary home, a second home, or an investment property.
Jumbo mortgages are a type of conventional mortgage that have non-conforming loan limits. This means that the price of the home exceeds the federal loan limits. Jumbo loans are more common in expensive areas and require more detailed documentation to qualify for this type of loan. An advantage of jumbo loans is that you can buy a home in an expensive area and the interest rates are competitive with conventional loans.
This type of mortgage, as the name implies, is a loan that maintains the same interest rate for the life of the loan. This means that the monthly payments will always be the same. This type of mortgage has a repayment term of 15, 20, or 30 years. The advantage of fixed-rate mortgages is that you can have a more accurate budget and consider it along with your other monthly expenses.
We Can Help
Be realistic with your income and the type of mortgage you can afford. Don’t let your budget get tight because you can run into serious problems with your finances. Always consider budgeting for emergencies or unexpected expenses as if it were just another expense for the month. The mortgage you can afford can be defined based on your monthly or annual income and expenses. Be sure to consult a good financial advisor to guide you in your decision. The smartest decision will be the one you make by gathering information and calculating your budget so that your mortgage payment does not have to be complicated.