The process of buying a house feels like trying to finish a level on Super Mario World—one minute you’re bumping along on Yoshi and the next minute you miscalculate and sink into a bottomless pit. Here are four things to watch out for before you run out of lives.
- Your credit score doesn’t matter for anything other than approval. Ouch! That’s not a Koopa but it’s close—your credit score determines not just your approval but your rate. The rate you’re going to have to live with for the duration of the loan. Make sure your credit score is looking healthy using these tips. (link)
- Your payment is 30% of your income, next level! Not so fast. The rule that your mortgage payment should not equal more than 30% of your income is more complex than it seems. Think of it this way—there’s more to home ownership than just the mortgage payment. There are maintenance expenses, taxes and homeowner’s insurance. If you fail to calculate those expenses into this thirty percent, you will be putting yourself in a sticky financial situation.
- You don’t really need a down payment. While this may be factually true—you aren’t required to put down 20% –it’s not a good idea for long term financial house. If you don’t put down a down payment, you will be required to purchase private mortgage insurance, which can be a substantial extra cost in your monthly mortgage payment.
- A traditional 30-year mortgage is the way to go. The 30-year mortgage is certainly the most common choice for mortgages, but it may not be the best choice. If you can afford a larger monthly payment for a 15-year loan, you will end up spending a lot less money over the life of your loan. Adjustable rate mortgages can be a good option if you are in a vigorous housing market and only plan to be in a house for a few years—before the rate resets, you will have moved.
We don’t all have to fall into the bottomless pits—in many cases a good real estate and mortgage broker can help you get through these levels and rescue Princess….I mean, buy the house of your dreams.
Photo by Cody Hughes @clhughes21