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Budgeting For Your Mortgage – Are You Financially Ready?

budgeting for your mortgage

Budgeting For Your Mortgage

Home ownership sounds exciting and it can be rewarding, but you should never jump into it without budgeting for your mortgageand knowing if you are financially ready. If you borrow more than you are actually prepared to pay back, there will be trouble down the line.

Four Important Items To Keep In Mind When Budgeting For Your Mortgage

In general, home owners should not push a budget to the limit by borrowing so much that there will be no discretionary funds each month. Extra cash will be required if important home improvements spring up out of the blue. Here’s some things to consider to be sure you’re ready.

What Do You Already Owe?

If you have student loans that aren’t going away any time soon, or another long term loan, these debts need to be factored in when you are budgeting for your mortgage. The lender will consider current debt when factoring in how much you can borrow, so you should think about them too. In short, even though someone can still get a mortgage with existing loans, it might make more sense to wait a few years until some of the current debt is reduced before applying for a home loan.

What Current Payments Can You Really Avoid?

If a mortgage payment will be more than your current rent or housing payment, it might be necessary to cut back on other expenses. You should be realistic about how much you will be able to cut back when you’re budgeting for your mortgage, however. For instance, it makes no sense to create a budget in which one plans to cut out Internet service, when in all likelihood Internet will need to be reordered sooner than later. Other things like child care and electric will also remain the same after buying a home, so one should not reduce these payments in any budget plan. However, it’s alright to plan to cut back on things like clothing and trips, which are easier to eliminate from monthly expenses.

Can You Afford a Down Payment?

Providing a down payment on a home can significantly reduce the monthly mortgage payment. Ideally, you will have at least 20 percent as a down payment, but the minimum required downpayment is 5%, although there is a higher cost to do this because of CMHC. If you can’t afford a down payment, or you’re only able to come up with a small amount, it may be best to save for at least one year and then revisit the idea of home ownership.

What is Your Credit Score?

Your credit score also impacts your monthly mortgage payment, because it helps determine the interest rate that you will be assigned. A credit score of at least 680 is ideal, and the two major credit bureaus provide individual scores. You can get a free copy of your credit report and score as long as it is requested in writing and delivered in the mail. If your current credit score is suffering, you might need to take a year or two to improve your score before buying a new home. A credit score can be improved over time by making all credit card and other debt payments on time, paying down some of your current debt, and refraining from opening any new credit accounts.

It’s important to make sure you are properly budgeting for your mortgage. You need to make sure you have a source of emergency funds in case something goes wrong with your home. Knowing that you can handle all or your financial obligations will put your mind at ease and allow you to truly enjoy having your own home.

What do you think? Is there anything else you should take into consideration budgeting for your mortgage? Leave your comment in the box below.