Mortgage Planning 101

Posted by David Realty Group

Purchasing a home is a large financial decision for anyone. Planning ahead and knowing what to expect can help make the decision easier and the process go more smoothly.


Here are a few mortgage planning tips that will ensure you are adequately prepared.


  1. Know basic guidelines. Some mortgage lenders will tell you that you can afford more than what might be comfortable for your personal financial situation. A good basic guideline is a mortgage payment that’s about 28% of your income and the total of your mortgage payment plus your monthly debt payments should be at around 36% of your income.
  2. Have a defined budget. Many people don’t keep a budget; however, if you can just keep track of your budget for a few months and get an accurate perspective on what you spend each month and on what, you will have a better understanding on how much house you can afford. Keep track of this in a spreadsheet or budget app. This way, you can see how the cost of a mortgage payment, insurance, and property taxes fit into your typical monthly spending pattern.
  3. Pay off your lesser debts. Before you apply for a mortgage, pay off your small debts. Pay as many of your small debts completely off as possible to possibly increase your credit score and lower your interest rate.
  4. Organize all your documents in advance. There are a number of documents you will need when applying for a mortgage loan. If you start gathering them now, the process will go much more smoothly. Make sure you have W-2s and income tax returns from the last few years, copies of your pay stubs, a copy of your credit report, records of any child support or alimony either going out or coming in, and bank statements for all your accounts for the last several months.
  5. Prepare for additional costs and fees. Many people often neglect closing costs when planning on purchasing a home. These costs can usually range from 3-5% of the total mortgage amount. Closing costs are typically paid in cash at the closing and cannot be borrowed funds.
  6. Compare loan options. Make sure you compare options from different lenders in order to get the best deal. Local banks, credit unions, mortgage brokers, and online resources should all be considered. Compare equal terms, down payments, and the types of loans available to you.

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