Like many things in life, planning ahead is the key to success. For example, establishing a budget from the very beginning of your search will help ensure a positive and stress-free result. Furthermore, here are a few more planning tools to keep in mind when understanding financing:
Determine What You Can Afford
Purchasing a home involves both one-time costs and monthly expenses. The largest one-time cost is the down payment, which typically represents between 5- 25% of the total price of the property. How much you can afford is based on 3 factors: your monthly mortgage payment, your down payment and the amortization period or length of time it will take to pay off the loan/mortgage.
The down payment is usually a percentage of the total cost of a home that you’ll need to pay upfront. The more money you put down, the more money you’ll save on monthly payments and, in the long run, interest paid.
Monthly costs incurred with home ownership typically include mortgage payments, maintenance, insurance, condo fees (if applicable), property taxes and utilities.
Obtaining a pre-approved mortgage will not only inform you of the amount of money you are able to spend on a home, but it will also protect you against increasing interest rates while you look for your new home.