We all want our own place, but can you actually afford the cost of a mortgage?
Taking out a mortgage is one of the biggest financial decisions that a person can make. It’s a commitment to the long-term payment of perhaps the largest loan that you’re likely to take out. If you’re not careful, you can lock yourself into a lot of financial stress. That’s why it’s important to make sure that you are, indeed, ready to handle a mortgage and select the right one.
Check your credit
The kind of mortgages available to you, and how much you’re going to be paying for them, is largely going to be determined by your credit score and report. You can check your credit report for free once a year from the major credit reporting agencies, and you might even get a little cash for checking through specific services. Of course, if your credit has any negative reports on it, you might want to take the time to repair it and boost your score by whatever means necessary before applying for a loan.
Get a downpayment at the ready
When you borrow from a bank or a lender, they’re going to ask you for a downpayment. This is often around 10% of the total amount of the loan, so you may want to prepare at least that much. Other loans can allow you to pay less if, for instance, you have collateral to put down while you can also prepare even more of a downpayment, which in turn may offer you more flexibility on your loan terms. Either way, you shouldn’t be looking at a mortgage until you have a downpayment ready or are at least working your way towards building one up.
Know how much you can borrow
How much the lenders are willing to lend you is going to change on a case-to-case basis. Even with the exact same credit report, they have their own criteria. That said, you can find various calculators available that can give you a ballpark estimate of how much you might be able to borrow based on your current circumstances. Take the time to do your research and see if you’re able to borrow as much as you want, and how much you can expect to pay for each.
Know how much you can pay
How much banks and lenders are willing to lend you is one thing. How much you’re able to actually pay might be a different thing entirely. The best way to work out how much you’re able to pay on a monthly basis is to create a comprehensive budget, overlooking all of your income and your costs. Take into account that there might be fees and additional costs with buying a home beyond the loan repayments alone, to make sure that you’re not going to blindside yourself.
With the tips above, you can double-check that you’re not getting yourself into any financial agreements that you’re not ready for. No one can tell what the future holds, of course, but you can at least reasonably expect that you should be able to pay your mortgage for the foreseeable.