For the average person, buying a home represents one of the single largest purchases they’ll ever invest in. It’s also one of the most stressful processes they’ll ever have to go through, that can be drawn-out and lengthy more often than not. There are so many moving parts to keep track of, between choosing a loan type, lender, and getting all your paperwork together, and that’s without even thinking about finding your dream home. What does it all mean? One of the big issues is not understanding the terminology. For instance, do you know what a conforming loan is? What about a qualified or non-qualified mortgage? Or private mortgage insurance? The answers to these questions and more can be found in ConsumerAdvocate.org’s recently re-worked Mortgage Rates page. The consumer review website’s research team spent over 200 hours evaluating 40 mortgage lenders, using 100+ resources, and narrowed down their list to just 9 top picks. Further than that, the team also wrote a comprehensive guide to mortgages, breaking down the home buying process and explaining what consumers can look forward to. For even more tips, the Consumer Finance Protection Bureau also offers helpful guides on how to prepare a loan application packet. It all comes down to dollars and cents. Even if you know what to expect, however, it’s important to pay attention to a few key points. First off, homebuyers should always make a budget and determine how much house they can afford. A good rule of thumb here is the 28/36 rule, which states that households shouldn’t spend more than 28% of their monthly income on expenses. Household expenses are more than just your mortgage payment, of course, and can also include homeowners insurance, HOA fees, and other needs like lawn care, home maintenance or repair, and furnishings. The second number in the formula refers to how much outstanding debt a household should ideally have—no more than 36% of monthly income should go to loans, whether for the home itself, cars, student debt, or credit cards. Another important part of budgeting is thinking about the cost of the new house itself, of course. And of any possible improvements it might need—buyers should always, always, always have the property inspected. After all, there may be severe structural issues that may require considerable investment. Most home renovations run into unforeseen issues as well, which need to be budgeted for. In any case, if the total cost of the project ends up equaling the difference between the sales price and market value, then that dirt-cheap fixer-upper may turn out to be a lot more than you bargained for. A final word of caution as regards those handy mortgage calculators found on so many lender websites. While these can be useful to gain a ballpark idea of what your monthly payment may end up looking like, don’t take it as the gospel truth. While calculators that include property taxes, PMIs, HOAs, and other, more minute variables will have higher accuracy, but should still be taken as an estimate. For more information, feel free to give us a call and we can discuss these terms further.
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