How to find your perfect home How to find your perfect home

How to find your perfect home (and the right mortgage)

If you are interested in buying a new house, you should know that there are many factors you should take into account and it's crucial that you thoroughly analyze them before going house-shopping. Check them out here!

Before you go house-shopping, you should analyze many factors like income, credit score and lifestyle. As it happens with other types of purchases, you need to make some research and check your personal finances before buying a house.

There are some main factors you'll need to check and understand, so here are a few tips that will help you figure out how much you can spend on a house and how much debt you can handle.

1.    How much home can you afford?

The first thing you will need to check is your monthly income. This will determine how much money you can spend on housing. Bear in mind you will also need to cover insurance, taxes and other expenses!

You can start by analyzing your debt-to-income (DTI) ratio, which will determine how much you spend on recurring debts per month. This is the ratio that lenders will check when you apply for a mortgage, as it will show if you can take on more debt.

To calculate your DTI you'll need to include your regular expenses and debt obligations (Rent, loan payments, credit cards), and divide it by your monthly household income. Divide it by 100 and you'll get your ratio.

The higher the DTI, the less likely you pay back your loan. The percentage should be less than 50%, otherwise, you will have a tough time finding a loan.

2.    Monthly mortgage payments

Once you know how much you can afford to spend, you need to figure out a budget. It will help you to determine how much you'll have to pay for your loan. At this point you should analyze term and interest:

•    Term: The length of your mortgage, can be a 30 or 15-year loan. The longer the term, the lower the monthly payment.
•    Interest: The rate will depend on several factors, like your credit score, your loan structure and general market conditions.

These two factors can help you create a reasonable budget that will structure what you can afford.

3.    Time to go shopping!

Now that you understand the main factors that will determine your purchase, and that your budget is set, it's time to go house shopping!

However, before you close a mortgage deal, you need to make sure that you can cover all the costs, including taxes. Take a final look at your expenses, track your financial activity of the last five months and see where your money usually goes.
The more you analyze your numbers, the better chances that you make an intelligent purchase and avoid taking on more debt!

5 costs you should keep in mind when buying a home

Budgeting homebuying costs isn’t easy. While your down payment is certainly important, it’s not the only thing you’ll be spending on. Bearing that in mind, don’t forget these other costs when planning to buy a home:

1. Earnest money

Earnest money is a good faith deposit made after your initial offer is accepted. The general rule of thumb for earnest money is 1 percent of the sales price, but some listing agents and sellers may expect between 3 and 5 percent.

2. Appraisal fee

Before you can be approved for your mortgage, your lender will need a professional appraisal showing how much the home is worth. As the buyer, you’re responsible for paying the appraiser’s fee. 

3. Inspection fees

Although an inspection is not required, the amount for a standard home inspection and a separate inspection for termites should be on your list of expenses.

4. Closing costs

While closing costs may come as no surprise, the amount you have to pay can easily be one of the largest unexpected expenses when buying a home. Closing costs are typically around 3 percent of the purchase price.

5. Repairs and upgrades

One final category of expenses not to forget when buying a home is renovations and repairs. Even if you are buying a new house there may be things to want to change before living in the house, so remember to budget for these expenses too.

Mortgages: which is the most suitable for you

The mortgage option that you choose will be an important aspect of your life for the next years. There are many variables to take into account before making this decision.

The first thing you’ll need is a preapproval letter. Your finances and credit will be looked into, so as to see if you can pre-qualify for a mortgage. The lender can tell you how much money you’d receive and under what terms. This letter is a powerful tool to start looking for a mortgage since it’ll make you stand out from other applicants.

Secondly, you have to define the down payment. Usually, people put 20% down, but there’s a wide range of options, even as low as 3% down! Keep in mind, putting down less money as a down payment means a higher cost later on, as well as paying for mortgage insurance.

Even if you can’t afford such down payments, there are some loans that might help you. You can look into Conventional mortgages, FHA and VA loans and see if they’re suitable options for you.

You can choose between a short- or a long-term mortgage. The difference is in the mortgage payment you’ll have to put down monthly and in the interest rates. You should compare a 30-year and a 15-year fixed mortgage in order to see what’s best for you.

See also: These are the cities where renting is cheaper than buying a home

Additionally, an adjustable-rate mortgage has flexible interest rates, which has its cons and pros. On one hand, you’d be taking a risk. On the other hand, it ensures a low-interest rate for the first years of your mortgage.

Lastly, you should compare mortgage rates and fees from three or more lenders. Some of them allow you to buy so-called “discount points”, which lets you prepay interests. This way, you’d guarantee a lower interest rate on the loan.

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