Whether it’s a condo, a ranch, or a house, there is much to be said for owning a place where a family can find permanence and stability — but the largest purchase you ever make should not be taken lightly. While home loans can deliver you the house of your dreams, a nightmare can await those who don’t do their due diligence before borrowing. So, if you’re looking to buy a home, go no further before reading this Q&A with answers provided by Alex Cardona, Mortgage Originations Manager at Amplify Credit Union in Austin, Texas.
How Much Mortgage Can We Manage?
As a real estate agent once so aptly put it, “People at every income level seem to want the house that is just beyond their price range.” Sure, it’s human nature to want to have the best house for your family, but how do you go about determining what you can afford before it impacts your ability to take care of their other needs?
The first thing you should determine is what percentage of your income you want to spend on housing. Most lenders will want to see the total debt-to-income ratio (monthly debt divided by monthly gross income) below 43 percent. Your total debt will consist of these primary considerations:
- Your housing expenses (principal, interest, taxes, insurance, HOA dues)
- The consumer debt listed on your credit report
- Any alimony, child support or separate maintenance you are required to pay
Now that you know how much home loan you can get, should you make full use of that amount? Before you do, be sure to consider the costs of other ongoing expenses, such as food, child care, medical care, and utilities as well as commuting and/or vehicle purchase and upkeep. And don’t forget to consider your savings programs or your entertainment costs because, after all, just because you’ve bought a house doesn’t mean you should have to stop having fun.
Once you have determined what dollar amount you feel comfortable paying and have an idea of the loan rate and term of the loan, you can use a mortgage calculator to figure out the loan amount that would be most prudent. Add to that figure whatever you plan to put down for down payment to the loan amount and that will tell you the price range of the house you should be looking for. (Ideally, you will want to put down 20 percent because it will help you get the best financing on your home loan, but minimum requirements are a lot less,3 percent for first-time home buyers, for instance.)
If this seems a bit involved, consult a loan officer and they will be happy to walk you through this procedure at no charge. There is no cost or obligation.
Home Loan or House Shopping First?
It’s a chicken-and-egg thing. Should you find the home you want to buy first and then see if you’re qualified to buy it, or should you get qualified for a home loan before you look?
As much fun as house hunting can be, you’ll want to do it after you have been qualified for a home loan. By doing so, your expectation level is right where it should be and any qualifying issues you might not have been aware of have already been addressed.
If you look first you could be setting yourself up for disappointment. You could find your dream house just to find out you don’t qualify to finance it. Qualifying will give you the right parameters. There are often cases where a prospective home buyer finds what they want while under the assumption they will qualify only to discover there are credit issues that need to be addressed and that doing so will negatively impact the closing timeline. Had they applied for financing first, they could have addressed those issues beforehand.
Another common mistake people make is when they try to fix or improve their credit on their own prior to applying for financing. There are a lot of common misconceptions about how to go about improving your credit. Again, a good loan officer will help lead you in the right direction.
Where Should We Get Our Loan?
Go local!
A lender who is familiar with state-specific laws and regulations is preferable. Some lenders get your business and then sell your loan to someone else on the secondary market before the ink has barely dried on the agreement. Ideally, you want to borrow from someone who has the ability to retain and service the loans they close. Most credit unions have this ability, whereas if your loan ends up with a secondary lender, they are confined to the guidelines that are set forth by the agencies and investors that they sell their loans to.
In other words, it’s nice to be able to meet face to face with a representative of the company that is getting your money.
Why Give Us a Loan?
It’s pretty simple, what lenders mostly want to know about you is that you have consistent employment, a history of strong credit, and an acceptable debt-to-income ratio. Those three factors will determine your ability to repay the loan. Remember: they want to give you your home loan as much as you want them to give it to you and they are as disappointed as you are when you don’t qualify.
What Type of Loan Suits Us?
As has been the case for over 50 years, most borrowers look for a 30-year fixed mortgage. It will give you a lower monthly payment than a 20-, 15-, or 10-year fixed loan, but the rate will be higher. So, if you are fortunate enough to have a very low debt-to-income ratio, then a shorter term loan will be cheaper in the long run (although the monthly mortgage payments will be higher).
Another option would be an Adjustable Rate Mortgage. This is a mortgage that will have a fixed rate for a specific number of years, and then will fluctuate with the market. This is a riskier loan that isn’t for everyone, but if you only plan to own your home for a certain number of years, you could realize a lower rate during that time period.
Now You’re Mortgage Ready!
Getting a home loan can seem like a tricky business from the outside looking in, but now that you’ve had insight from the inside, you are better prepared to find the perfect place to raise your family.
About Amplify Credit Union
Serving Central Texas since 1967, Amplify Credit Union serves more than 55,000 members with over $750 million in assets. Membership is open to anyone who lives, works, or worships in Travis, Williamson, Hays, Caldwell and Bastrop counties. With member interests always in mind, Amplify offers a variety of products, services and financial education surrounding auto loans, home loans, homeowner express loans, money markets, checking and more. In addition to eight branch locations, members have access to bank anywhere, anytime with Amplify’s online banking system and Amplify Mobile, Amplify’s powerful and secure app. To learn more about Amplify Credit Union, visit goamplify.com, like us on Facebook and follow us @AmplifyCU on Twitter.
