Home Buying by the Numbers

Financing (continued)

KEEP SOME SAVINGS INTACT

Don’t empty out your savings.

You may be tempted to throw all your money into your down payment since the idea of taking on a huge debt like a mortgage loan can seem intimidating.  Many people want to immediately put everything they can into their principal balance to feel a little better about the overwhelming amount of money they owe.  If this is your first time buying a home, though, what you may not realize is that after the home is yours there is an uncanny way that money starts disappearing.  Maybe your old furniture just doesn’t look right in the new home.  Perhaps your commute to work is suddenly an hour longer than it used to be and you have to come up with extra cash for all the gas.  Whatever the reason, you need to maintain an emergency fund to cover anything, which may pop up.  Don’t drain all of your savings under the assumption that you can just turn right back around and fill it back up later.  If anything, you can use the money that you would have otherwise used to restock your savings and instead put that towards the principal balance on a monthly basis.  Draining your savings account is like putting out an engraved invitation for financial trouble to come your way.

Some lenders won’t lend if you don’t have some assets available.

If you have $15,000 sitting in your savings account and list this as the amount of money you intend on putting down as a down payment on your mortgage loan application then you have effectively just told the lender that once you buy this house, you have no money.  Lenders like to see a little extra money sitting in a savings or investment account so that they know if a financial emergency comes up you will be covered.  Otherwise you look like the kind of borrower who might get forced into foreclosure the second a financial crisis hits.  So what counts as an asset? Anything liquid, that is, assets, which can be, turned into cash quickly, count as assets.  The assets should also be verifiable.  That means that your retirement accounts count as an asset, but the priceless work of art on your mantle piece may not.  Sometimes cars can be counted as assets, but that varies from lender to lender.  When you are looking to get a mortgage loan you should spend just as much time building up your assets as you do paying off outstanding debt.  Both factor heavily in the approval process.

Mortgage financing does not need to be a mysterious process.

If you have problems understanding any of the terms or if you feel as though you aren’t getting the whole picture then you need to ask your mortgage consultant to clarify things for you.  There are so many different options when financing a mortgage loan and there are so many new things to learn that it is no wonder the process can get a little confusing at times.  Just be sure to do your research and demand explanations for anything you don’t understand.  This simply isn’t the time to be passive.