Mortgage Payments: Spend or Borrow?
When buying a home, determining how much to borrow is equally as important as determining how much to spend. People often assume a sizeable down payment and thus a decrease in overall debt is the best approach. However, spending more than you are comfortable with on a large down payment can be a misstep. Often times, the right choice is a combination of down payment and mortgage loan. Home Qualified’s Ralph DiBugnara lists three questions all homebuyers should consider when deciding upon a mortgage loan.
- Am I Comfortable With My Mortgage Payment? A manageable monthly mortgage payment is more important than down payments or interest rates. Buyers should seek low interest rates but should ultimately be more concerned about the cost of monthly payments. This figure is fixed and should feel feasible. Buyers should feel financially comfortable with the amount of money they are spending every month.
- Do I Want to Incur Mortgage or Credit Card Debt? Many homebuyers make the mistake of putting all of their savings towards a down payment. Left with little in the bank, all other household expenses end up being charged to a credit card. For the sake of comparison consider that mortgage interest rates are usually around 4%. Credit cards by contrast are usually around 20%. The fallout from this common mistake is that buyers use money for a down payment and then charge everything needed for a home on a credit card . Mortgage interest rates average around 4% while credit cards average around 20%, meaning your mortgage will always cost you less than a credit card will .
- Will My Monthly Payment Leave me Cash Poor? Payment shock within the first few months of buying a home is completely normal. No matter how much you save or prepare, the real cost of your investment may still come as an alarming surprise. Similarly, no amount of foresight and planning can prepare you for all of the unexpected costs associated with buying and owning a home. If purchasing the home of your dreams will essentially clear your savings now is not the time to buy. Save above and beyond, set aside enough funds to cover your monthly payment and provide a comfortable cushion for unforeseen expenses. This financial padding is a great step towards ensuring the ultimate success of your investment.
Buying a home can be a great investment and a wonderful life choice but ask yourself the hard questions before you start the process. Remember, Home Qualified is here to help. If you would like more information about mortgage loans or to schedule an appointment please reach out to us in the comment section below. Happy house hunting.