CHICAGO, IL--(Marketwired - Apr 24, 2013) - Traditionally, spring marks a busy period of time for housing market activity. With the heat of summer seemingly only weeks away, BMO Harris Bank offers first-time homebuyers strategies for finding their ideal home while keeping financial priorities in check.
Buying a home can be the largest and most important financial decision one can make, so it is important to be aware of all the factors that go into making a responsible purchasing decision.
"The first step is figuring out how much you can afford to spend on homeownership, which means an honest assessment of the household balance sheet," said Kevin Christopher, Head of Mortgages Sales, BMO Harris Bank. "Once you have a clear idea of where you stand financially, you can then make a responsible decision of what you can afford, including your down payment, monthly mortgage costs and other expenses like utility costs, property insurance and taxes."
BMO Harris Bank offers these tips to those looking to buy a home.
Making an affordability assessment
Christopher noted that there are two rules of thumb first time homebuyers can use to determine what they can afford.
"First of all, housing costs, including mortgage payments, property insurance and taxes, should not take up more than one-third of your income. In addition to this, servicing your overall debt, including loans, utilities, credit card payments and lines of credit, should not account for more than 40 percent. If you can land safely within these parameters, then homeownership is an affordable and realistic option."
Many banks offer free online tools to help you wade through the home lending process. For example, https://www4.harrisbank.com/us/personal-finance/mortgages?nav=left provides useful information for the potential homebuyer including: affordability calculators, term options, and mortgage qualification estimates.
Coming up with the down payment
In general, the bigger the down payment you come up with, the less interest you'll pay over the life of your mortgage. Financial institutions may offer special accounts designed to help you save for that first home. Consider opening a savings account specifically to fund your down payment. One easy way to save is to set up an automatic monthly deposit from your checking account to your savings account, allowing you to build the balance over time.
Choosing the right mortgage for you
Your mortgage needs to fit in with the rest of your financial priorities -- which could mean increased flexibility or security. Consider the following when choosing your mortgage:
- Choose a shorter amortization period - In general, the shorter the life of the mortgage, the lower the overall interest cost. Consider choosing a 20-year amortization rather than a 30-year amortization to save you money on interest costs and help you become debt-free sooner.
- Fixed vs. variable - Variable-rate mortgages have been a winning strategy over the long term, but fixed rate mortgages (currently at historic lows) provide cost certainty and peace of mind.
- Stress-test your mortgage payments - Use a mortgage payment based on a higher rate to stress-test your budget; total housing costs (mortgage payments, property taxes and insurance, etc.) should not consume more than one-third of household income.
Applying for pre-approval
A pre-approval establishes the amount you can reasonably afford to borrow towards the purchase of your first home. Consider the following benefits to getting pre-approved:
- Have a good idea of your finances - You will receive a better idea of how much you are qualified to borrow, saving time looking at homes that meet your affordability range. Your term and amortization, as well as estimated monthly payments, are provided at approval so you can use these figures when planning your overall budget.
- Moving quickly - If you are pre-approved for a mortgage, you'll be able to move quickly to make an offer when you finally find the perfect home for you.
To learn more about personal finance tools and resources get started with helpful steps.
About BMO Harris Bank
BMO Harris Bank provides a broad range of personal banking products and solutions through over 600 branches and approximately 1,300 ATMs in Illinois, Wisconsin, Indiana, Kansas, Missouri, Minnesota, Nevada, Arizona and Florida. BMO Harris Bank's commercial banking team provides a combination of sector expertise, local knowledge and mid-market focus throughout the U.S. For more information about BMO Harris Bank, go to the company fact sheet. Deposit and loan products and services provided by BMO Harris Bank N.A. Member FDIC. BMO Harris Bank(SM) is a trade name used by BMO Harris Bank N.A. BMO Harris Bank is part of BMO Financial Group, a North American financial organization with approximately 1,600 branches, and $542 billion in assets (as of Jan. 31, 2013).
BMO Harris Bank is a trade name used by BMO Harris Bank N.A. Banking deposit and loan products and services are provided by BMO Harris Bank N.A. Member FDIC. Brokerage and Insurance products are offered through BMO Harris Financial Advisors, Inc. (BHFA) and M&I Financial Advisors, Inc. (MIFA), each a registered broker/dealer, member FINRA/SIPC, and SEC-registered investment advisor. Investment banking services are provided by BMO Capital Markets Corp. (BMOCMC) and BMO Capital Markets GKST, Inc. (GKST), a Municipal Bond Dealer and member FINRA and SIPC. Financial planning and investment advisory services are provided by Sullivan, Bruyette, Speros & Blayney, Inc. (Harris SBSB), an SEC registered investment advisor. Family Office Services and Investment advisory services are offered by Harris myCFO, LLC (Harris myCFO), an SEC-registered investment advisor. Stoker Ostler Wealth Advisors, Inc. (Stoker Ostler) is an SEC-registered investment advisor. Investment advisory services to institutional clients are provided by BMO Asset Management Corp. (BAMC) or its wholly-owned subsidiary HIM Monegy (Monegy), SEC-registered investment advisors. Products offered by BHFA, MIFA, BMOCM, Harris SBSB, Harris myCFO, Stoker Ostler, BAMC and Monegy, which are affiliated companies and wholly owned subsidiaries of BMO Financial Corp.,: Are not insured by the FDIC or any Federal Government Agency, not a deposit of or guaranteed by any Bank or Bank Affiliate, may lose value. The purchase of insurance or an annuity is not a condition to any bank loan or service. Not all products and services are offered in every state and/or location.