Do you think you’re emotionally ready to buy a new home and settle down with your family members? If the answer is yes, the very next consideration should be whether or not you’re financially ready to do the same. It can’t be denied that taking out a mortgage loan is one of the biggest financial decisions which you can ever make as the mortgage loan amount is usually a huge one. Hence, before you take the plunge into the mortgage bandwagon, you have to pass through few financial tests so that you’re sure about the amount of mortgage that you can afford in accordance with the income that you make every month. Let’s take a quick look at the few tests that you have to go through.
- The affordability test
Who doesn’t wish to live in the house of their dreams? But as long as home ownership is concerned, it’s vital to not only think of your affordability at present but also whether or not you will be able to manage the expenses in the near future. Are you going to buy the home as a single person or as a couple? Will you be able to make repayments on time? Use the mortgage loan borrowing calculator to make the vital calculations which can help you take a right decision.
- The budget test
When you’re about to become a first-time homebuyer, something that you need the most is proper money management skills. There is a host of new expenditures that you have to prepare yourself for like water rates, council rates and home insurance costs. Since it is your own home, you will be liable for upkeeping the appliances, the yard, the water heater and every other thing. Unless you stick to a proper household budget, you won’t be able to stay on track. Even if you wish to prepay the loan to pay it off sooner, you will need money.
- The sizable downpayment test
The sizable downpayment that is demanded by the lenders is usually 20% of the price of the property. If you’re buying an apartment at $500,000, you will require paying down $100,000 then and there. This is seen to be one of the biggest impediments for most homebuyers as they don’t start saving money beforehand. When you’re not able to make this down payment, they tend to add PMIs in order to ward off their risk. Such payments unnecessarily boost your monthly payments. Hence, try to save enough and pay down the right amount to avoid PMIs.
- Interest rate rise test
If you’re planning to stay in your house for the next 10 years, there’s no question of selling off your home. But what if there is a sudden rise in interest rates? Could you still afford repayments in case the rates increased by a percentage? Or would that demand you to cut down on other expenses?
Once you pass the above mentioned financial tests with flying results, you can be sure about taking a plunge into the mortgage bandwagon.