Mortgage Tools
Current Mortgage Rates
You'e finally ready to buy a home and with current mortgage rates close to historical lows it seems like a good time to dip your toes into the real estate pool. You've been squirreling away money for your down payment, been pre-approved for a house mortgage and spend all of your free time scouring the MLS website for your dream house.
The bank says that you can afford a mortgage, but can you really afford as much as you've been pre-approved for?
The Pre-Pre-Approval Process
When you apply for your mortgage the lender takes into account the mortgage payment, cost of heating your house, property taxes and current debt. What they don't take into account is any other cost of living.
Before going to the bank, it's a good idea to make up a budget - if you don't already have one. Where to start? Here are some basic items that should be in your budget:
- Total net income: in addition to your salary, don't forget to include income from spousal or child support, rental income and government benefits.
- Fixed expenses: are items that don't fluctuate in price, things like rent or mortgage payments, childcare, car payments and insurance.
- Variable expenses: are the items that vary month to month, such as food, gas, entertainment and savings.
Once you've put a budget together, you'll have a better idea of what you can afford. Using one of the many online mortgage calculators, play around with different scenarios to get a feeling for what your payments will be at different interest rates and amortization periods.
Feeling comfortable with those numbers? It's time to get pre-approved.
Why Get Pre-Approved?
Getting pre-approved through a bank or mortgage broker is an important next step. While you'll know exactly how much money you can spend, it also lets real estate agents and vendors know that you're serious about buying. In addition, most lenders will lock in the interest rate for 90 days and if the rate goes lower during that period you'll get the lower rate.
You may be surprised at the amount of money that the bank has pre-qualified you for. Go back to your online mortgage calculator and enter the number that the lender gave you. Take a look at your budget and the monthly mortgage payment, do they match up? Just because the lender qualified you for an amount, it doesn't mean that you have to spend that much.
When buying a house, you're not only paying for the house itself but also the cost of upkeep on the house - including heating, water, electricity, property taxes and renovations. The lender hasn't factored most of these costs into your ability to pay them back the money that they loaned you.
Make sure that you're taking on current mortgage rates that you - not the lender - are comfortable carrying. Happy house hunting!
