Becoming a homeowner is an event that many of us look forward to. But all too often, when it’s all said and done, we suffer from belated sticker shock. Even though lenders have requirements regarding income and debts, we may still end up with more house than we can afford.
When buying a home, it’s crucial to consider our unique financial and life circumstances. Going with the amount that lenders tell you that you can afford is a mistake. These numbers may work as a general guideline, but sometimes they’re just too high.
Here’s a list of things to consider when deciding how much of a house you can afford.
How much debt are you in already? If you have outstanding car loans or credit card balances, this will affect how much you can afford to spend on a mortgage payment each month. As a general rule, your total debt should not be more than 36% of your income. But if you’re not comfortable with that figure, by all means go lower.
How much of a down payment can you afford? There are loans available that do not require a down payment, but it’s best to make one if at all possible. This will reduce the amount you have to borrow, hence reducing your monthly payment. And if you pay at least 20% down, you won’t be required to pay private mortgage insurance (PMI).
What will the taxes on your property amount to? You’ll have to keep your property taxes current to comply with the terms of your mortgage. In some cases, a lender will require you to pay into an escrow account each month to ensure that they are paid. Otherwise, you’ll have to budget for taxes on your own.
Don’t forget about homeowner’s insurance. This is also required by lenders to protect their interest in your property. You may also need more insurance than the lender requires to ensure that you have enough coverage.
Keep maintenance and repairs in mind. When you’re renting, these are your landlord’s responsibility. But when you’re a homeowner, it’s all up to you.
Are you expecting any changes in your income in the future? If you plan to start a family, you may have to deal with lost income during maternity leave. You’ll also have higher expenses with each new addition. This and other changes in your situation could leave you with less money to put toward mortgage payments.
What are interest rates like? When interest rates are high, the amount of home one can afford goes down. When they’re low, it goes up. If you’re on the borderline and interest rates are high, consider waiting until they drop before buying.
When becoming a homeowner, it’s easy to get carried away and spend more on a home than you can comfortably afford. But if you do, you’re setting yourself up for financial difficulties in the future. Knowing what you can afford to pay for housing each month, including expenses such as taxes, insurance and maintenance, will help avoid unpleasant surprises down the road.
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For a long time, it seemed like banks were handing out mortgages on silver platters. Even those with not-so-good credit could find a lender who would work with them. This seemed like a dream come true for those who wanted to become homeowners. But when the housing market went south, lenders began to be more cautious.
Today’s housing market is a far cry from what it was just a couple of years ago. Fewer lenders are willing to serve those who do not have excellent credit scores. Those who are fortunate enough to get a mortgage without perfect credit have to contend with higher interest rates.
But looking for a great mortgage deal is not a lost cause. For those with good credit, there has hardly been a better time to get a mortgage. Interest rates are low, and lenders are willing to compete for the business of well-qualified borrowers. Here are five things you can do to get a good deal on your mortgage.
1. Carefully examine your credit report. If there are errors, report them to the credit bureaus. If your credit is less than perfect, start working on building it up right away. Catch up on delinquent accounts, and make all payments on time for a few months. These measures can make a big difference in your interest rate.
2. Compare rates online. You can find rates for many lenders on the Internet, and some websites allow you to compare rates and terms side by side. Even if you don’t like the idea of borrowing from an online lender, you can find rates for banks with branches in your area. At the very least, this will give you an idea of what to expect.
3. Visit some lenders in person. Most offer several different programs, so it pays to sit down and discuss your needs and finances with them. Determine the best deal a lender can offer you, and get it in writing. Then visit more lenders and compare results.
4. Don’t forget the local banks. Smaller banks tend to minimize their losses by only working with highly qualified borrowers. This means that they can afford to offer lower interest rates.
5. Remember that there’s more to a great mortgage deal than a low interest rate. Make sure you understand the terms of the loan, especially when it comes to other costs such as points, closing costs and private mortgage insurance (PMI). If these costs are high, they could negate the effects of that stellar interest rate.
Getting a good deal on a mortgage can be a time-consuming task. But the rewards may be measured in thousands of dollars. In today’s housing market, it literally pays to shop around.
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Getting into debt is a very easy thing to do. But getting out of debt is much more difficult. When you let debt get out of control, it can take many years, and often many thousands of dollars, to get it all paid off.
But if you have a plan, getting out of debt doesn’t have to be too painful. Here are ten things you can do to pay off those bills quickly.
1. Sell your unwanted stuff. Most of us have a lot of things just sitting around collecting dust. Many of these items are worth at least a little bit of money, and some may be worth quite a bit. Put them in the paper, have a yard sale or sell them on eBay. Then put every penny that you make toward paying off your debt. This won’t bring you ongoing funds to pay off your debt with, but it will help you put a dent in it and avoid some interest.
2. Start a side business. Even those who work full time can usually find the time to participate in some money-making activities after work or on the weekends. Do some babysitting, detail cars or make crafts and sell them. These activities can generate money to put toward your debt until it is paid in full without the pressures of working a second job.
3. Make money online. You can do so in a number of ways, including taking surveys, blogging or providing services. Use the money you make to pay off your debts.
4. Rework your budget. We can all find room for improvement. Even small items such as that daily cup of coffee on the way to work can make an impact. Cut the fat and put the money you save toward your debts.
5. Sell your car. If your car payment is a burden, selling it and buying something more affordable will leave more money in the budget (and more to pay off other debts).
6. Snowball it. This method involves paying as much as possible toward your largest debt until it’s paid off, and in the meantime making only minimum payments on everything else. When the first debt is paid in full, apply the amount you were paying on it to the next smallest debt in addition to its minimum payment. Keep doing this until your debts are all paid.
7. Consolidate your debts. If you have a lot of high-interest debt, consider transferring the balance to a low- or no-interest credit card. This will give you one monthly payment instead of many and lower your minimum payment and interest. But you still need to pay as much as possible each month to achieve maximum savings.
8. Pay bills weekly or biweekly. If you get paid every week, send in ¼ of the payment each week. If you get paid every other week, send ½ each time you get paid. This could save you interest, and you’ll end up making an extra monthly payment each year.
9. Negotiate with your creditors. If you’re having trouble making your payments, some will offer lower interest rates and reduced minimums.
10. Talk to a credit counselor. They will negotiate with your creditors on your behalf, and can often get deals that creditors won’t offer directly to debtors. When it’s all said and done, you can make one monthly payment to the credit counseling agency and they will forward payment to your creditors. With their plan, you could be debt free in a fraction of the time it would otherwise take.
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