In industry parlance, a deal is deemed “sealed” or “closed” or “done” when the final payment for the property has been made. If you belong to the group described above, it is wisest to do your math first before leaping into getting a mortgage loan when you are buying a new home because you wouldn’t want to be left out in the cold until the deal is sealed, now, would you?
It is not so simple to just compute your take-home pay and readily, hastily conclude that you can manage it. Your first consideration would be how much down payment you have saved up for this venture ready to give up front. The usual trade-off for smaller down payment is a higher interest rate on the balance, and this might mean it would take a longer period of time before you could pay it in full to close the deal.
Next would be how much of your take-home income (this refers to the bottom-line figure, after all the taxes and other debts have been deducted from your gross take-home pay) could you afford to peg for your monthly amortization on the balance without breaking your back.
The answer to these questions requires that you have to first list down all your quantifiable expenses and then finding out how much is left -- is it enough for the monthly amortization with enough left for the other basic necessities, like food, clothing, payment for monthly basic utilities and your kids’ education. Would it leave you with enough extra funds for emergencies like unexpected hospitalization? And would it still allow you that mandatory 10 percent minimum savings?
If you must get a loan for buying a new home, do not opt for the so-called adjustable-rate mortgage. On the surface, the adjustable-rate mortgage is very attractive because it is usually coupled with an initial payment that is lower than the fixed-rate mortgages; but if you examine it closely, the government might up the mandatory real estate taxes and, of course, the lender would pass on this increase to the end-consumer (the borrower), and you’d be caught gasping for dear life because it would affect the balance of your loan. You might end up not being able to afford further amortization and lose everything when you default payment on the remaining balance. Sad scenario, but it could happen.
Instead, opt for the fixed-rate mortgage because the steady interest rate on this type of loan gives you comfort that nothing will upset your budget and lifestyle in the duration of its lifetime. When you get a salary increase in your job or if you are awarded a good-performance bonus -- money you are not expecting and did not peg for any of the necessary expenses you listed down earlier -- you can put these unpredicted-but-welcome income to good use by using it to pay up your loan; this way you’d get out of debt faster.
You could also opt for owner financing, or have the property's owner finance part of your purchase. The only problem with this arrangement sometimes is that you could end up paying higher interest rates than you would if you had taken out a bank loan.
The only time you will feel that buying a new home is pleasurable is when you can call it your very own, and no longer mortgaged.
Brian Shelton makes home
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