Thursday, December 16, 2010

Home Buyer Considerations

Mortgage lending has been the catalyst and factor allowing most of today's homeowners to own their home. Depending on your personal finances you also may one day take out a mortgage. In which case there are several factors that home buyers should consider before buying a home and taking out a mortgage. This article contains essential mortgage questions home buyers should consider when obtaining a mortgage.



Financial Questions Home Buyers and Mortgage Borrowers Should Seriously Consider 

Are you comfortable with the Mortgage loan term (15 yr - 30 yr)?

You have to decide whether you will opt for a 15-year or a 30-year loan term.

If you are opting for the 15-year loan term you have to make higher monthly payments but the rate of interest will be lower.

When you opt for 30-year loan term, you pay lower monthly payments but the rate of interest will be high. You get more time to pay off your mortgage.

Adjustable Rate or Fixed Rate?

If you opt for an adjustable-rate mortgage, your monthly mortgage payments will be less in the first few years. The rates will change as per the prevailing rates in the market. Thus your monthly mortgage payments will also differ.

If you opt for fixed-rate mortgage, your monthly mortgage rates will be fixed and predictable. This may make it easier for you to keep up with your financial obligations and stick to your monthly budget.

Does your income support the size of the mortgage?

Your income is undoubtedly an important factor that determines what size and type of a mortgage you can afford. It is important that you live within your means.

What is your debt to income ratio?

Your DTI or debt to income ratio is another factor that can help you to decide how much mortgage you should take out. The more debt you have the less you should consider borrowing.

What is Your Credit Score?

Your credit score has a big impact on the cost of borrowing. The better your credit report and credit score the better and more favorable your financing options will be.

If you think you will be able to improve your credit score in the short term then it may be worth the wait.

How big of a down payment can you afford?

The down payment that a home buyer is both willing and able to make is one of the most important factors considered by lenders.

The bigger the down payment is the cheaper the financing costs will be.


Is buying a home the best use of those funds?

There is no question that owning a home is one of the most beneficial purchases that people make. However before you purchase a home you still need to weigh the pro's and con's of the purchase as well as the opportunity cost.