How a financial planner can help you qualify for a mortgage
Purchasing a home is first and foremost a major investment – and can make or break your financial future. Many buyers unintentionally jeopardize their savings, children’s education, or even their own retirement by following the incorrect financial advice of others. Working with a financial planner helps buyers in two ways: it gets their finances in order before applying for a mortgage and prevents them from making financial unsound decisions.
Fine tune your budget before applying for a mortgage
A common mistake many first time buyers make is not fully investigating their own finances before applying for a mortgage. Unfortunately, this can result in high interest rates, the necessity of private mortgage insurance, or the loan application being altogether rejected.
Working with a financial planner before you start the house hunting process can ensure your finances are in order. The following five tips can ensure buyers are able to qualify for a mortgage when the time comes.
- Make a list of monthly expenses: know what you’re making and where your money is going each month
- Find ways to cut back: look for areas in the budget that can be scaled back, even if only temporarily
- Pay off as much debt as possible: the more money you owe, the more a lender views you as high risk
- Save for a down payment: try to get as close to 20% as possible to avoid paying PMI
- Buy realistically: most financial planners agree buyers can afford a home about 2.5 times their annual salary
Things to discuss with a financial advisor
Mortgage officers are often only concerned with how much home you can afford; financial advisors can help buyers decide how much home they should buy. Financial advisors look at more than just your income and debts, helping buyers leverage their short- and long-term financial goals alongside their home purchase. This includes discussing topics such as:
- Will this monthly payment allow me to save at least 12% of my pretax income?
- Can I afford a 10-20% down payment?
- How will my finances change if I opt for a 15 year vs 30 year mortgage?
- What do I do if the value of my home changes? Could I still afford this home with a change in career or family situation?
- Will I still have an emergency fund to cover three to six months expenses after closing and moving costs are covered?
- Should I put down as much as possible or put down the minimum amount?
While there are no hard and fast answers for many of these financial questions, having these discussions with a certified financial planner can help buyers make sound financial – and real estate – decisions!
by Author, December. 010, 2019