There are hundreds of questions that people have when it comes time to select a new mortgage or buy a home. Heare are five of the the most common home loan questions.
Q: When’s the best time to buy a house?
A: The best time to buy a house is when you’re ready. Although housing prices fluctuate, traditionally they have increased over time. Even in markets with modest gains in housing prices, there are tremendous tax advantages to owning your own home. There are also huge quality of life issues involved. It’s great to know that you’re the King or Queen of your own castle. If you have children, the security of owning your own home, and giving them a backyard to play in, is priceless.
Q: Should I pay off all my debts and bills before applying for a mortgage?
A: Not necessarily. Before you rush to pay off student loans, a new car loan or other obligations, talk to your lender. Paying off bills may be a bad idea if it depletes your savings or reduces your down payment. Either one presents the appearance that you are living beyond your means.
On the other hand, paying off some debt may be wise if you need to lower your total debt-to-income ratio. A good way to approach this is to be prequalified for the loan. Most lenders will offer advice on how to improve your financial situation before you actually apply for the loan.
Q: Is a big down payment really important?
A: That depends on your situation. There are a wide variety of loan products available today that make home ownership possible for almost everyone, even without a down payment. However, you may not want to use them.
Historically, people who buy without a down payment are much more likely to default on their mortgages. It’s really simple an owner who has invested more in a home, is going to work harder to keep it, because they have more to lose. Higher default rates mean higher interest rates. So, if you have little or no down payment, you are likely to end up paying a higher interest rate than someone with a large down payment.
Conventional mortgages usually involve a down payment of 20% or more. Many people, especially first-time homebuyers, start with a 5% down payment. The highest interest rates are usually charged by lenders when there is no down payment. There are even 100% financing programs that will allow you to purchase a home with no money down.
Q: How important are debt ratios?
Debt ratios are general guidelines, not hard and fast rules. Many conventional mortgage lenders like to see a 20% down payment with a house payment that is no more than 28% of gross income. They like the total monthly obligations to be no more than 36% of gross income. But, those are only guidelines. Mortgage lenders make exceptions to the guidelines every day, based on the buyer’s total financial position and credit history. Don’t let a higher debt ratio keep you from buying the home of your dreams!
Q: Can senior citizens get a mortgage?
Yes! Many senior citizens pay a higher percentage of their income for housing, than people in other age groups. Also, years of experience has shown that seniors tend to be good credit risks. For that reason, many lenders have more lenient standards for seniors. Often, seniors are approved for a higher debt ratio than usual.