Mortgaging with confidence: ‘Clients should know their own budget,’ local expert says

When the purchase price is secured and the contract is signed, homebuyers then turn their attention to setting up a mortgage and financing their investment. While this process is at times rife with frustration or peppered with misinformation, it doesn’t always have to be that way. With a little research and some honest insight into personal finances, buyers can successfully navigate mortgage financing and come out with minimal headaches.

The first step is being aware of one’s own means. “I may be able to qualify a client for a higher mortgage payment than they would feel comfortable paying since they may have expenses that we don’t consider for mortgage-qualifying purposes,” such as utility bills, groceries and automobile insurance, said Kim O’Rourke, president and chief loan officer at Denton’s Cultivate Home Mortgage.

“Because of this, clients should know their own budget. Then, I consider their monthly payment budget along with their available funds for their down payment and closing costs to determine their target purchase price and mortgage amount.”

Being within budget is one area that demands attention, but homebuyers can encounter trouble in other ways when negotiating a mortgage. O’Rourke points specifically to clients’ tendency to simply look for the lowest interest rate. Often, these rates come with higher closing costs that will end up costing more than having a higher rate.

Furthermore, O’Rourke has noticed that some clients rush to open new lines of credit prior to closing. This can lower one’s credit score and increase debt-to-income ratio, both of which should be avoided during the closing process.

Clients also tend to fret while evaluating the length of their mortgages. Determining what life will look like decades into the future can be a troubling proposition. To combat this anxiety, O’Rourke again stresses the need to practice financial realism and accountability.

“It’s important to be aware of your plans with the home, like how long you plan on living there, whether you have any large expenses coming up in the next few years, or if you’re planning on making any major changes to your income in the future,” O’Rourke said. “It might be advisable to have a shorter term or pay off your mortgage quickly if you are expecting to retire in a few years and you want lower monthly expenses during retirement.”

Clients also should consider the community they are investing in. Is it a place where they can see themselves putting down roots?

Also, dealing with a local mortgage professional is better than working with someone who doesn’t work or live in the area. Many people tour homes and make offers on evenings and weekends, and a nearby mortgage broker is easier to reach outside of regular business hours.

“Mortgage brokers also make shopping for a mortgage easy,” O’Rourke said. “Since we work with many lenders, we can shop the rates and programs of many lenders all with one application and credit pull.