Apr 10, 2015
Even for those who aren’t new to real estate, understanding how a mortgage works can be confusing. To put it simply, a mortgage is a loan secured by a property. If you take out a mortgage, the lender holds onto the deed to the home until the loan is paid back in full. If you do not pay the entire amount, the lender has the right to seize the property, sell it, and collect the money that is owed.
So, how big of a mortgage do you need? The amount of a mortgage varies depending on your downpayment. You can put down as much money as you want to, or you can pay as little as 3 to 5 percent of the purchase price, or sometimes nothing at all, though it isn’t recommended.
The more money you put down, the less you need to finance, thereby lowering your monthly payment, which consists of both principal and interest and typically includes additional amounts to cover property taxes and insurance. This can include hazard insurance and private mortgage insurance, which is required for down payments less than 20% of the purchase price.
So, how much can you afford? Ask a reputable real estate agent, who has information on lender loan requirements and can help you calculate an estimated monthly figure you can afford based on the maximum monthly payment for the loan, taxes, insurance, and other fees. This pre-purchase evaluation can save you from wasting time looking at homes you can’t afford.
Mortgage lenders can also help calculate what you can afford and pre-qualify you for a loan even before you begin house hunting, so you know exactly how much you can afford to buy. Lenders generally recommend that you spend no more than 28% of your gross monthly income on a mortgage payment or 36% on total debts.
Ultimately, how much you can afford will depend on other factors besides your gross income and outstanding debts. This includes the amount of cash you have for the down payment, your credit history, current interest rates, closing costs and cash reserves required by the lender, and the type of mortgage you select.
For more information on mortgages, contact the knowledgeable Realtors at Hilton Head Island Real Estate Brokers today! Call 843-785-8006 or fill out our contact form here.
If you want to make a little piece of The Island your own, you need more than just a road map and a REALTOR. You need a partner who can make things happen.
Home Sales Hit a Record-Setting Rebound
Jul 24, 2020