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What Sized Mortgage Should You Take?
Though this current real estate market is being called a “buyer’s market” there is still one adage that all potential buyers or existing homeowners should follow – don’t take too much money. Regardless of whether a bank or lending agent assures you that you are qualified for the sum, the fact of the matter is that many homeowners have gotten into serious trouble over such an issue.
When you are looking to purchase a home, you will have to go through either a pre-qualification or a pre-approval process. To be safe, always ask to be pre-approved. This means you will work directly with the bank, mortgage company or lender with whom you want to take the mortgage. They will ask you for very specific details and documents from which they will generate a dollar amount that you will be able to comfortably afford.
If you opt for a pre-qualification, you may be setting yourself up for disappointment or financial trouble. Pre-qualifications will only give a “ballpark” amount and you may locate your dream home only to find that you are not able to actually get the financing. So, save the time and get the pre-approval. This is one way to ensure you take the correctly sized mortgage.
If you are pre-approved, you still may find yourself a bit overburdened by a mortgage because of the unanticipated expenses associated with homeownership. You may need to pay significantly higher utility bills, keep up with maintenance, deal with taxes and other expenses that can wallop a budget. For these reasons, it is best to keep your purchase price a bit lower than your pre-approved amount.
It is also important to note that closing costs can sometimes bump up the total mortgage by five to seven percent. This can be a huge shock to some buyers at the closing on their home. Quite often, a buyer will also discover what are known as “junk fees” in their mortgage as well, and these too will push the payment up a bit. To avoid such a nasty surprise the buyer should request a good faith estimate from the lender which would itemize such costs months before the closing. Such a document can really disclose if a lender is offering good terms or mercenary terms and if the mortgage being taken is of the appropriate and manageable size for the buyer’s budget.