Before most people begin looking for a new home, they first determine how much they can afford. An affordable mortgage rate will impact everything from the size of the home you look at to the neighborhood you explore. So how do you determine what an affordable mortgage rate is?
Establish a budget. In your budget, you will need to be sure to include all expenses you currently have, as well as those you expect after the purchase of a home. Look at all sources of income, and all bills that will be paid. Some expenses that a renter may not have that you will have as a home owner include:
- Homeowners insurance - This will be a requirement of your mortgage company. Your annual premium can range from a few hundred dollars to multiple thousands of dollars, depending on the location, size and quality of the home.
- Property taxes - Your state and local government may have property taxes on your home. These can also range considerably, depending on your state and county.
- Various utilities - Many landlords will take care of sewer, gas, water and garbage bills on a monthly basis. As a homeowner, these will be your responsibility.
- Maintenance costs - As a homeowner, you will be responsible for the costs necessary to maintain your home, ranging from paint to drywall to kitchen remodel.
Once you have established a budget, you can begin to review your finances to determine how much you can afford on a monthly basis.
Other tools are available to help you in determining what you can afford on a mortgage. Websites and banks offer mortgage calculators that take into account your current wages and income, debt and other payments as well as the proposed mortgage and interest rate to see what you can afford. One website with a good tool is Affordable Mortgage Calculator
which will tell you how much you can afford based upon the above information.
The mortgage you can afford will also be directly impacted by the available interest rate. In order to get a better interest rate, you will want your credit to be in the best shape possible. It is recommended that you check your credit to confirm it is accurate, pay down high interest credit cards, and lower your debt in general to increase your credit score. This will allow you to get more bang for your buck with your mortgage.
Finally, the traditional method of determining an affordable mortgage rate is to go to your local bank or financial institution and speak with a loan specialist. They will walk you through the loan process, fill out some basic paperwork and determine what they can approve you for on a monthly basis. Bear in mind that just because you have been approved for a particular loan does not mean that it is within your means to afford it. It is recommended that you always create a budget to determine what you can really afford.