If you want to purchase a home but you can’t pay for it upfront, a mortgage loan can be your best option. However, you will be tied paying for the house to as long as 30 years. Plus, the interest rates can make the total cost of your purchase really big once payment has been completed. And if you cannot afford paying for the house anymore at any given time, the bank can claim the house from you.
If you are considering getting a mortgage loan, understand first the costs involved in getting one. Since this is a long term and expensive endeavor, you might want to prepare for the expenses big time.
Typical Cost Of A Mortgage
The typical cost of a mortgage is $6.65 monthly per $1,000 borrowed.
The price includes the principal as well as interest for borrowing $1,000 from a company in a 30-year term. This means that if you have purchased a home that costs $200,000, your monthly mortgage cost is $1,330. The cost of a mortgage can also be calculated as 28 to 30 percent of your monthly income. So if you have a gross monthly income of $2,000, you will be likely given a mortgage that will cost $560 to $600 a month.
Factors That Affect The Price Of A Mortgage
Interest rates. Mortgage companies offer different interest rates for mortgage loans. The higher the interest rate is, the higher the cost of the monthly mortgage payment will become.
House. How much is the house you are getting? The more expensive the house is, the more you have to pay for the mortgage every month.
Term. You can choose a mortgage term of 15 or 30 years usually. A 15-year mortgage will mean higher monthly rates but oftentimes with lower interest rates as compared to a 30-year mortgage term.
Type of loan. A mortgage loan can either be a fixed rate or an adjustable rate mortgage. In a fixed rate mortgage, you pay exactly the same amount of principal and interest rate for the whole duration of the loan term. On the other hand, an adjustable rate loan means the principal and interest rate can go higher or lower after three to ten years or so.
Income. Your annual income greatly determines mortgage prices. Usually, you will be granted a loan that is 28 to 30 percent of your gross annual income. So the more your income is, the more mortgage loan can be granted to you.
Debt. If you have a debt that exceeds 26 percent of your monthly income, it is less likely that you will be granted a mortgage loan. However, the clearer your debt record is, the more mortgage you can actually quality for.
Credit score. If you have a perfect credit score, you usually can get lower interest rates for your loan. And if the interest rate is low, your monthly obligations may be lower as well.
Down payment. When you get a loan for a home, you will be required to pay a down payment. The monthly mortgage payments will be determined by how much money you have put on the down payment. The more you give as a down payment for the home, the lower the monthly mortgage will be.
There are a lot of expenses associated with getting a mortgage loan. This includes the following:
Down payment. Usually, a good down payment is 20 percent of the total cost of the house purchase.
Origination/application fee. This is the fee that the lending officer charges for his services in doing the loan. This is usually one to two percent of the total loan amount.
Appraisal fee. Purchasing a home requires an appraisal, which must be done by a licensed appraiser. Expect to pay $300 to $500 extra for this.
Processing fee. A broker will collect $400 or less from you as a processing fee most of the time to cover the processing of all tasks such as ordering title, appraisal, and insurance preparing all documents, and the like.
Credit report. Expect to pay $12 to $20 extra for getting a credit report.
Late fees. If you fail to make the mortgage payments on time or the payment is received 15 days after the due date, you will be subjected to a late fee.
Title search and title insurance fees. The lenders will need to examine the public records of the property to ensure there are no discrepancies that will put them at loss.
Closing costs. You usually have to pay two to five percent of the total value of the purchase for closing the sale of the house.
Tips Before You Decide To Get A Mortgage
Evaluate your current financial status and see whether or not you can afford to get a mortgage. Analyze your monthly and annual income, your debts, your job, and a lot of other details in your financial status. You can also analyze your monthly expenses and see how much you can afford to spend on a mortgage every month.
Make sure you have a good credit rating. A perfect credit score is crucial towards qualifying for a loan in the first place.
Pre-qualify for a loan through mortgage lenders that you know. There are a lot of online mortgage loan calculators that will help you determine how much loan you can afford and how much you can actually qualify for.
Get quotes from different mortgage companies and choose one with low interest rates. You may also want to check out the mortgage policy as well as associated fees being collected by the company. If you are wary enough, you’ll get good deals from good lenders who will not collect too much money from you when speaking of the fees alone.
Understand everything about a mortgage first. You must also know all legal and questionable mortgage fees so you don’t end up paying unnecessary fees in relation to your mortgage.
Know whether you will benefit more from a fixed-rate mortgage or an adjustable rate mortgage. The former protects you from sudden increases in the interest rates over the duration of your term. However, if the rates decrease, you are locked into paying the fixed amount you have agreed on at the beginning of the term.