Starting the mortgage process: Can I afford to buy a house?
What Is A Mortgage?
Can I afford to buy a house?
Before you do anything else, review your monthly budget and determine what percentage of your income can be put toward housing. When you consider the decision of buying versus renting, be sure to think about:
- Your estimated mortgage payments
- The additional costs of home ownership, including maintenance and property repairs, as well as homeowner's insurance and utilities
- The impact of your monthly mortgage payment on your other financial goals, like education and retirement planning.
- The potential tax benefits of deducting your mortgage interest on your annual tax return. Consult your tax advisor.
How much can I afford to borrow?
How much you can borrow is largely dependent on your personal financial situation and appetite for monthly payments. It is also influenced by how much your lender is willing to approve, given your annual income, credit score and other credit related factors.
Use the following ideas to put together your own evaluation:
- Use the calculator below to estimate your monthly home payment, using a purchase price that reflects the size and location of the properties you're considering.
- Using that number, calculate the percentage of your income that will go toward your monthly home payment.
- Don't forget to include mortgage-related expenses, including property taxes, mortgage insurance and homeowner's insurance. Take a look at our glossary of terms for a detailed explanation of each of these items.
- Look at your estimated payment in relation to your budget. Will you have sufficient funds to cover your other required monthly expenses?
How do interest rates and points work?
A point is equal to 1% of the loan amount. For example, one point on a $100,000 loan is $1,000. Three points equals $3,000. Points are typically used to secure a lower interest rate.
When it comes to points, you have three options:
- Pay no points, in what's called a zero point mortgage
- Pay points at closing to receive a lower interest rate
- Have points paid to you (also called lender credits) and use them to cover a portion of your closing costs
Lenders may offer different interest rates on loans, depending on the number of points you're willing to pay. You'll need to choose the option that's financially right for you.
How do I finalize my mortgage decision?
What's next after finding a home and evaluating your mortgage options? Finalizing your mortgage application requires two important milestones: expressing your "intent to proceed" and deciding whether to lock in your interest rate. Here's how it works:
- Your lender can provide you with a Loan Estimate, which includes your loan amount and estimated monthly payments, before you make any final commitments.
- Once you've selected your mortgage option, your next move is to tell the loan officer that you want to move forward with your application. This is called expressing your "intent to proceed". You don't need to pay most fees until you actually take this step.
- Your Loan Estimate may indicate an interest rate that has been "locked" or a rate that is "floating" -- which means it can go up or down. You can request a "rate lock" for a defined time period to ensure that your rate remains the same, regardless of daily changes in mortgage rates.
- Rate locks are typically available for 60 days. The downside to a "rate lock" is that it may be expensive to extend if finalizing your transaction requires more time. And, a rate lock may lock you out of better pricing if interest rates happen to fall before you close.
- The interest rate on your Loan Estimate is not a guarantee. If your rate is floating and is later locked, your interest rate will be set at that later time. Also, if there are changes in your application-including your loan amount, credit score or verified income-your rate and terms will probably change too. In those situations, the lender provides you with a revised Loan Estimate.
- A Santander Mortgage Specialist can walk you through this part of the process and provide more details.
I've applied... what happens next?
You're in the home stretch! You've chosen your home, your offer has been accepted and you've applied for your mortgage. Now you need to take a few final steps:
- Find a home inspector to evaluate the condition of the house you've chosen.
- Review your Loan Estimate to make sure it's consistent with the decisions you've made.
- Review your Closing Disclosure, a document that covers all the details about your loan, its key terms and how much you're paying in fees and other costs.
1All loans subject to approval