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MMI Warns Consumers Against These Common Mortgage Mistakes
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For more information contact:
Kelly Rote (713) 394-3201 |
Release Date: May 18, 2005 |
HOUSTON (May 17, 2005)—June is National Homeownership Month and last year there were a record number of new home sales, a record number of sales of existing homes, and record levels of homeownership (Source: Census Bureau and HUD). Unfortunately, there are still many people who never achieve the dream of homeownership, simply because they fail to implement a plan that prepares them for buying a house.
If you are interested in home ownership, your first step should be to perform a financial check-up. Lenders will look at how much of your income will go toward the mortgage payment and how much will go toward other debts. For a typical government backed loan from the Federal Housing Administration (FHA) or the Veterans Administration (VA), the lender likes to have about 33% of your gross income available for a mortgage payment, which includes principal, interest, insurance, taxes and assessments.
To make the most of your investment, the experts at Money Management International (MMI) encourage you to avoid some common and costly mortgage mistakes:
Confusing the terms “qualify” and “afford.” When determining how much home you can afford, remember that your mortgage payment, plus your ongoing debt, should be no more than 41 percent of your gross income, or you might be overextending yourself financially. For example: gross monthly income of $2,000 multiplied by 41 percent equals $820.
Shopping for a monthly payment. When comparing mortgage loan products, it is important that you look at the big picture. For example, while a 40-year mortgage may offer a slightly lower monthly payment than a 30-year mortgage, you end up paying more in interest over the life of the loan. In addition, it will take much longer to build equity.
Underestimating the true cost of homeownership. There are many costs that are incurred by new homeowners, including up-front costs, the down payment and closing costs. Additional costs you may incur include realtor’s fees, property taxes and homeowner’s insurance. Many people are surprised by the little things you need to buy once you get into the house, so creating a realistic budget is essential.
In addition to your debt-to-income ratio, lenders also look at your work and credit history. If your credit is less-than-perfect, there are legitimate mortgage companies that will approve your loan. However, they will probably require a larger down payment than normal and will charge a higher interest rate. Therefore, it is wise to improve your financial standing before you buy a house, even if it takes some time and effort.
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Money Management International, is a non-profit community service organization that provides confidential financial guidance, counseling and debt management assistance to consumers. MMI helps consumers trim their expenses, develop a workable budget, lower their debt payments and repay debts. Services are available by phone. To visit with an MMI counselor, call toll-free 1-800-762-2271- 24 hours a day, 7 days a week. Spanish speaking counselors are available. Consumers can also learn more by visiting the MMI home page at www.moneymanagement.org.
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