The Nest

NestApple's Real Estate Blog

Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.

Key Factors to Consider Before Taking a Real Estate Loan

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There are many factors to consider when deciding whether or not to take out a mortgage loan. However, the most important thing is to consider yourmortgage application approved purchase a long-term commitment and that you’ll live with this decision for quite some time. Before taking out a real estate loan, some key factors must be considered.

  1. Determine how small amount of money you can afford to borrow. It’ll depend on your income, debts, and other financial obligations.
  2. The best option is when you’ve found a lender who offers competitive interest rates and terms.
  3. You need to compare different loan options to find the best suits your needs.
  4. You must understand all the fees and costs associated with the loan.

In all, research is essential. Doing your research and preparation ahead of time can make taking out a real estate or reno loan easier.

What about the down payment?

The down payment size¬†will directly impact the amount you’ll need to finance your home. A significant down payment means a smaller loan, and a smaller loan amount means lower monthly payments.

The down payment is also critical in determining the interest rate you’ll pay on loan. Meanwhile, lenders may offer lower interest rates to borrowers who can make a larger down payment.

Making a larger down payment can also help you avoid paying private mortgage insurance (PMI). PMI is required if you finance more than 80% of the purchase price of your home. In this case, it’ll protect the lender if you become a defaulter on a loan.

How much interest are you going to pay?

Before taking out a real estate loan, you must consider how much interest you’re willing to pay every month. You can come to know what type of loan is right for you and how much you can afford to borrow.

Can you afford a house mortgage?

Assuming you have a regular job with income taxes already taken out, your gross monthly income is what you bring home before any otherballon mortgage - contingency deductions. To calculate your monthly net income, take your gross monthly income and subtract social security, medicare, and federal and state taxes. It will give you your monthly net income, which is your monthly spending.

If you need to figure out how much house you can afford, some online calculators can help. Once you know how small you can afford, it’s time to start looking for and finalizing a loan.

Extra costs to incur

Real estate taxes: You’ll likely have to pay real estate taxes on your new home, which will vary based on your home’s value and area’s tax rate.

Homeowners insurance: Lenders typically require borrowers to have homeowners insurance, and it protects you and the lender if your home is damaged or destroyed.

Private mortgage insurance: If you put less than 20% down on your home, you may need to pay the PMI. Here, the lender gets protection if you commit a default on your loan.

HOA dues: If your new home is part of a homeowner’s association (HOA), you may need to pay dues. These dues go towards maintaining common areas and amenities and can add up over time.

Ending thoughts

Before taking out a real estate loan, it is essential to consider a few key factors. These include the type of property you want to purchase, the credit score, and the down payment amount. Additionally, work with a reputable lender who can offer you competitive interest rates and terms.

Written By: Georges Benoliel

Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.

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