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Financial Considerations for Mortgage Seekers

Careful financial planning and awareness of several housing factors can help you make a more informed decision about buying a property.

Feb 11, 2013

Purchasing a home is undoubtedly one of the most exciting, albeit expensive, investments you may make during your lifetime, and it’s necessary to take a cautious approach. Careful financial planning and awareness of several housing factors can help you make a more informed decision about buying a property. When you’re done shopping around and have found your dream home, consider the below factors before speaking to your lender.

1. Affordability
Taking on too large a mortgage than you can feasibly afford can not only put your home in jeopardy, but also inhibit you from contributing to other important categories, such as savings and retirement. To avoid overextending yourself, consider relying on a mortgage calculator and budgeting spreadsheet to determine how much you would pay each month. Most housing professionals discourage buyers from purchasing a home when the monthly mortgage payments take up more than 28 percent of the owner’s take-home pay. In addition, avoid simply looking at mortgage payments when determining affordability. It’s also crucial to factor in property insurance, maintenance, fees and associated costs.

2. Your credit
Your credit score will directly affect the mortgage rate you’re assigned. Pulling a copy of your credit report and score at least six months before submitting a loan application is a wise idea, because it gives you enough time to dispute errors and inaccuracies. This period is also a good time to pay down high-interest debt that is raising your credit utilization ratio – your revolving balances in relation to your available credit lines – and dragging down your credit score.

3. Your down payment
Home seekers should plan to save enough money to make a 20 percent down payment on their home. The higher the down payment, the lower their mortgage payments will be over the course of the loan. Utilizing liquid bank products, such as high-yield savings accounts, to help maximize your savings and maintain access to your money may help you reach your goal more quickly.

4. The length of time you plan to stay
When the housing market is in a state of volatility, it’s important to commit to your investment because the process of purchasing and selling a home can be expensive once fees are factored in. The markets for selling and buying can shift quickly, and it may take several years to build equity in your home. Therefore, if you’re planning to use your home as a retirement planning tool, as many consumers do, it’s important to be honest about whether you plan to put a great deal of time and money into your property.

The information contained herein may not represent the views and opinions of Zions Bank or its affiliates and is intended for informational purposes.  It is presented for general informational purposes only and does not constitute tax, legal, investment or business advice.

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