5 Mortgage Planning Tips to Get You Off on the Right Foot
Planning to buy a home? It's an exciting time, and chances are good that you're ready to start applying with mortgage lenders so you can begin looking at properties. Stop right there - mortgage planning should start well before you contact a lender. In fact, it should start a year or two before you even plan to move. In addition to starting early, there are several other crucial mortgage planning tips that you'll need to know to ensure you get off on the right foot.
Plan for Closing Costs
One things that too many first-time homebuyers fail to account for is the need to pay closing costs. Sometimes you can get the seller to pay these, but it usually falls on your shoulders. Your closing costs will vary based on the amount you borrow and the type of mortgage you choose, but you can expect to pay between 3% and 5% of the loan's value upfront and in cash, not in borrowed funds
Plan for Upkeep of the House
Whether you're buying an existing home, or you're investing in a brand-new home, you still need to play for upkeep of the home and the property. This is particularly true with older homes that might need more maintenance, or additional upgrades, but even new homes will have some upkeep considerations. These can range from the need to repaint the home or replace siding to installing a privacy fence in the back yard to the need to purchase a lawn mower to handle yard care.
Save for the Unexpected
If there's one thing you can expect with homeownership, it's that the unexpected will crop up, usually when you are least prepared. Mortgage planning will require that you set aside cash against these unexpected problems so that you can handle them relatively easily. These are things like roof leaks, a failed air conditioner, a stove that inexplicably needs to be replaced, a failed hot water heater, and the like.
In your mortgage planning efforts, it's important to ensure that you're able to estimate the impact of your loan payment on your financial situation. To do this, create a monthly budget that includes an estimated mortgage payment each month, and then live by that budget. You should also account for all of your expenses, including discretionary spending like entertainment and luxuries, and all sources of income. Creating such a budget does several things for you, including allowing you to get a feel for the lifestyle you'll need to adopt when you actually get your loan, and how much you can afford in a loan without sacrificing quality of life.
Get Your Documents Ready
The final step in mortgage planning is to get all of your documents together. You'll need tax information for at least the past two years, proof of income for the previous 30 days, contact information for your employer(s), verification of any non-employment sources of income, bank statements for at least two years and more.
With the right mortgage planning steps, you'll find that the process of finding the right loan, and then buying the right home is simpler and involves far less hassle.