5 Questions To Ask Before You Get a Mortgage

There’s no larger expense that you’ll have in your life than the purchase of a home, which for some can cost seven figures. Not many of us are able to pay for a house in cash, and rely on mortgage to get the job done so we have a place to call home for the next few decades. With that in mind, you have to ask yourself a few questions before committing to a mortgage. These five questions need to be answered first and foremost before signing any paperwork.

1. What’s my interest rate?

The one thing that determines the housing market more than anything is the current interest rate. Before locking yourself into a mortgage, make sure that you’re getting the best interest possible. Of course, the rates are completely volatile and can change on a daily basis, so it’s best to strike at a rate that’s favorable like it was during the late 2000s and early 2020s.

You also have to understand the different types of mortgage interest rates. There are different rates depending on the type and length, with some being fixed rate mortgages while others are adjustable rates. Fixed rate mortgages are by far the most popular, with people locking into their prices for the length of the loan.

2. What type of mortgage do I need?

Interest rates differ by the type of mortgage that you get, and there are several options when shopping around for a loan. A fixed-rate mortgage is the most common, as it comes with a set monthly payment amount that appeals to people who will eventually make more money and can pay off their mortgage early. Then, there’s the adjustable-rate mortgage where there are lower payments at the beginning, which is also another good option for those that will make more as the years go on.

For those with great credit and want to buy an expensive home, conventional and jumbo mortgages are among the best options and typically handled through a broker. Finally, there are government loans through the VA and FHA that require low down payments and are given to those with low credit scores.

3. Is my debt too high?

You can have hundreds of thousands in debt, but if you’re making millions of dollars, then that massive amount of debt won’t matter one bit to mortgage lenders. Debt-to-income ratio (DTI) is one of the first things that lenders will look at, and the lower your DTI, the better your chances of getting a desirable mortgage approved.

There are two aspects to your DTI, with the front-end and back-end. The front end is the monthly payments that include your mortgage, taxes, insurance, and utilities. The back-end is for all of your other monthly expenses that aren’t related to the house, such as credit cards, groceries, gas, and student loans.

4. Can I afford monthly payments?

The other side of the DTI is the income itself. If you’re one of the many people that’s looking to move from an apartment and into a house because the mortgage payments are cheaper than rent, you have to consider your savings.

Rental agreements are typically 12 months and you aren’t obligated to make any major repairs as that onus falls on the landlord. When you own a house, though, you’re the one that pays for any repairs and has to replace appliances. Make sure you have enough money to afford these unexpected expenses before diving into a mortgage.

5. How long do I want to live here?

When you’re paying for something like a house, you know that you’re investing a lot of money, but you’ll also be investing a lot of time. Before you get into a mortgage, you want to make sure that you’re satisfied with the house that you’ll be calling a home. While you have the option to pay off a mortgage early, that’s not going to be a strong likelihood for a lot of people.

With that in mind, you want to make sure that you’re comfortable living in a new house for at least 10 years, with the average mortgage being 30 years. In some cases, mortgages can be as long as 50 years, so make sure that everything is absolutely perfect for you and your investment before taking out a five, six, or seven-figure loan.