With mortgage rates at an all-time low, you may be considering taking the plunge into homeownership. However, rushing into such a large financial decision just to get a good deal could end up costing you in the long run. Slow down and take the time to do some research before calling up a mortgage broker. To help guide your search, check out this list of what to know before applying for a mortgage.
What You Can Realistically Afford
Taking out a mortgage before doing some serious budgeting is a recipe for disaster. When considering how large of a mortgage you need to take out, make sure that you’ll be able to comfortably meet the required monthly payments.
As a rule, the monthly payments on your mortgage shouldn’t account for more than 28 percent of your gross income. Ultimately, taking out a larger mortgage to purchase a house outside of your budget typically isn't worth the financial strain and stress that it will cause as a result. Do yourself a favor and crunch those numbers ahead of time.
What the Different Types of Mortgage Options Are
There are essentially two main types of mortgages—a fixed-rate or an adjustable-rate mortgage. A fixed-rate mortgage charges a set interest rate, while an adjustable-rate mortgage’s interest rate may fluctuate after a specified introductory period ends.
In addition to these two main mortgage options, there are also several other types, such as hybrid-adjustable-rate mortgages, balloon mortgages, and buy-down mortgages. By familiarizing yourself with the many different mortgage options and what their terms are, you’ll be able to make an informed decision on which is ideal for your unique financial situation.
How Long You Want Your Mortgage Term to Last
Another important thing to know before applying for a mortgage is how long you want the mortgage term to last. Mortgages are typically available at either 15- or 30-year periods.
The main advantages of choosing a 15-year mortgage are that interest rates are generally lower, and they allow homeowners to pay off their loan in half the time as a 30-year mortgage. However, 15-year mortgages also require higher monthly payments, which can place more financial strain on homeowners than a longer, 30-year mortgage option. Before committing to a mortgage term, craft a detailed budget to determine which mortgage option will allow you to live comfortably.
