Posted on: 30 March 2017
Deciding on the final dollar amount of your mortgage will have an impact on your financial life for years to come. Here are some steps to take when deciding how much to borrow from the bank.
Find Out How Much You're Approved For
The very first step is to get your mortgage pre-approval. It will tell you the maximum amount that you can consider spending with your home buying loan. It's a good idea to do a financial checkup beforehand to ensure that your credit is in order and your other debts are under control; this will give the mortgage lender greater confidence in you as a buyer and help increase your pre-approval amounts.
Decide on Your Target Dollar Amount
Once you know your approval amount, you will have a better idea of what you can spend. But you might decide to go over or under this amount when you're targeting homes in your price range.
You should go under that dollar amount if you expect your financial future to be rocky. For example, if one parent will stay home with the kids for the first five years, and you expect to lose their income, it could be hard to make payments on a house that was meant to be purchased with two incomes. If a family member has significant medical expenses or other payment obligations, you may also want to shoot well under your approval amounts when buying a home.
In some cases, you can also go over the approval amounts. This is the case if you have significant savings to contribute to the pot or you are going to receive a cash gift to put towards your home. In rarer cases, it can be a good idea to get a second loan from an alternate source, but only do this if you are confident about paying it off. Consult a certified financial planner so that you can take into account all of these factors and not simply target the dollar amount your mortgage company hands you.
Find the Right House
The next step is to find the right house, of course. Negotiate the best offer you can with your real estate agent's help.
Decide How Much to Spend from Savings
Your payment for a home might come from your own savings and from your mortgage lender. Putting your own savings towards the down payment of the home can help to reduce the amount of interest you will pay in the long run. But it's also taking money out of your pocket that you could invest or save for a rainy day.
For more information, you should talk to a certified financial planner.Share