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Mortgage is a long-term financial commitment which stays with you anywhere between 10 to 15 years or more. Defaulting payment of a mortgage can even mean losing the property which was so much part of your dream. Since repayment is critical for maintaining a mortgage, you should try to make it as affordable as possible. While buying a property, be it a home or a commercial office can be done instantly with the help of a mortgage loan, it is repayment which can cause untold misery, if you take a loan, which you can ill-afford.
Here are some tips which can help you decide on an affordable mortgage loan:
- Lenders usually assess the monthly mortgage limit (including principal amount, interest, tax and insurance) should not exceed 25 to 28% of your monthly income. The government FHA loans are a bit flexible with a stipulated limit of 29%.
- While your city clerks’ office can brief you on the amount of property tax which you have to pay every month, consider .125 to .250% of the total value of your home to be the insurance cost which you have to pay each month. For example, for a $200,000 home, you can calculate your insurance premiums will be between $250 and $500 a year.
- To assess your monthly income, the lender not only takes your standard monthly wages but the overtime and bonus amounts you have earned in the past 12-month period. The other amounts which are added to your income are income from any other sources, benefits received from Social Security, veteran benefit, retirement income, alimony, workers compensation, disability income, income from interests and dividends, etc.
- Mortgage limits are affected by the amount of debts which you carry. Any lender will assess your long term debt situation, which includes car or student loans, charge cards, real estate loans, alimony or money spent on child support. Long term debts are amounts which you pay out every month, and which need to be paid for at least 10 months.
- Usually, lenders favor if the monthly mortgage payments are kept within 33 to 36% of your monthly income which is taken at the pre-tax level. FHA loans allow 41%.
- Mortgage limits can be enhanced if the debts are reduced. Before any mortgage application, you could try to reduce your outstanding debts.
- The amount of money which you can offer as down payment also reflects on your mortgage loan amount. The higher your down payment is, the lesser your monthly mortgage repayment will be. Even this can impact the tenure of your mortgage loan, as you will have to pay lesser amount of interest.
- A down payment of 20% of the total value of your home is considered as standard payment while taking a mortgage loan. The important point to remember here is that the down payment which you make can not be done with money borrowed from any one. You have to generate this money for down payment from your own resources like savings, sales value of assets, etc. Some mortgage types allow you to use money which has been given to you as a gift by some one in the family.
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