With the housing market in recovery, finally, and many other economic indicators looking positive for the first time in years, many people who decided to rent and weather the storm are emerging back into the market and looking to purchase homes. But just because the housing market is stronger than it had been doesn’t mean that we should forget the lessons of the bubble, and the main lesson is to buy the house you can afford, and borrow sensibly.
The first thing to keep in mind is that while your mortgage broker or bank will tell you how much money they’re willing to lend you, that isn’t the same as the amount of money you should borrow. For example, if your bank is willing to lend you $300,000 that doesn’t mean you should bump your budget up to the $300,000 mark. Do your own math and figure out what mortgage payment you’re comfortable with – and make that your budget, regardless of what they’re willing to loan you.
Types of Mortgages
During the housing crisis, everyone learned the evils of adjustable rate mortgages and interest-only mortgages and the like, with the end result that many people are afraid to consider any product other than the conventional 30-year fixed rate mortgage. The conventional mortgage can be a sensible choice, but there are other safe options: An FHA loan, a VA loan, or a Conventional 97 loan, to name a few. All three are common, safe, and stable – consult your broker or financial advisor about which one is right for you. The right type of loan is just as important as the amount.
Your personal financial history and credit score will have a huge impact both on loan amounts and interest rates offered to you. A few months or even a year spent improving your credit can have a huge impact on how much you ultimately pay for your home. Before you dive in and start house-hunting, consult a financial advisor, review your credit reports, and take steps to improve your financial standing – it will be worth it!