How to Get the Best Mortgage Series – Week 2
Follow this series to learn how to get the best mortgage for your specific financial situation and goals. You’ll see what steps you need to take throughout this process to make it productive and successful!
It’s about what you can afford each month before determining a price range!
As discussed last week, you need to know what you can afford each month so your lender can work backward to determine a correlating sales price.
That’s why your first step is to look at your monthly budget, which will help determine your monthly mortgage payment. Then the lender can pre-approve you for an amount you’re comfortable with (and not necessarily a higher amount they say you can afford).
Remember, knowing what you qualify for is not helpful (FYI, lenders can qualify you for more than you want!)
Knowing what YOU WANT to qualify for and what those numbers look like is helpful—both your potential monthly payments and down-payment requirements.
If you do it this way, you will only start looking at homes in the price range that makes sense for your budget.
Knowing where your money goes each month and how much you spend is an essential financial must-do whether you own a home or are still renting. If you’ve never really sat down to create a monthly budget, now is the time to put these numbers down.
Ask yourself these two critical questions:
Where does your money go now each month? And, what expenses could you tighten up on to get the home you want?
What expenses are “mandatory” for your life and general happiness? For example, if you love to travel, buy something other than a home that makes it impossible to go on a trip for years! That would not be worth it. But, if you rarely drive your car and are willing to take The Bus, then that’s where you could cut some of your monthly expenses to buy a home in the location you want.
Making a budget is essential, so be honest about what you spend your money on each month now, what you’re willing to forego, and what you expect in the future.
Remember, what you can afford today can change next year. Yes, your salary will increase, but you’ll have new costs, such as kids or a new car, which could mean daycare and monthly car payments—factor in all of this when doing your calculations.
Break It Down
Here’s what to include in your housing expenses. You’ll need to estimate some of these numbers, and I can help you with that.
•List all the costs of homeownership — property taxes, mortgage insurance, home insurance, maintenance, utilities, condo fees, and parking fees, if applicable. I can help with estimates!
•List all other expenses you expect to continue — such as gym memberships, daycare payments, car loans, school loans, gas or commuting fees, etc.
•Estimate yearly maintenance costs for a home. Plan to spend or save about 1% of your home’s purchase price each year. So, if you buy a $300,000 condo, you should put about $3,000 per year into the home for maintenance or a savings account for when you need to replace something in the future!
• Include any tax advantages you’ll get as a homeowner. You’ll have deductions or equity in your home and can expect a larger refund that could go toward your savings.
As a home buyer, it’s also important to consider additional expenses beyond your mortgage payment that can impact how much home you can afford.
Mortgage Math “Rules of Thumb” to Consider
Here are some additional guidance or “rules of thumb” that many experts suggest to buyers when determining how much they can afford comfortably. Remember, your specific situation could be very different, but these guides can be a starting point.
These guides are a great way to help determine if you can afford your current monthly debt obligations AND any new mortgage and homeownership costs AND still have some cash left over each month. You never want to be wiped clean each month!
Everyone’s tax situation is different, so be sure to take to your licensed CPA to see how homeownership will impact your particular taxes.
I’m Here to Help
It’s an essential step before you start looking at homes. Once you know your monthly budget, you’ll be able to work with the lender to determine your price range, which will help you finalize your mortgage product and down payment options. Don’t hesitate to contact me if you have questions about calculating a monthly budget.
Stay tuned! Next week, the third installment of the How to Get the Best Mortgage series will cover the topic, How Much You Need for a Down Payment. This one is a biggie! But you need to go through this monthly budget step first, so get this homework done before next week
I'm Tehane, a local realtor helping locals buy, sell, and stay local in Honolulu Schedule a conversation, and let's talk about your current situation and where you want to be. Then, let's create a plan to get you there. Every journey begins with the first step!
BHGRE Advantage Realty
4211 Waialae Avenue, Box 9050
Honolulu, HI. 96816