CHICAGO, March 8, 2012 /PRNewswire/ -- Traditionally, spring marks a busy period of time for housing market activity in Illinois. BMO Harris offers first-time homebuyers strategies for finding their ideal home while keeping financial priorities in check, as well as a limited-time special rate discount for a new home purchase.
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, Director of Mortgage 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 and property taxes."
BMO Financial Group offers the following tips for people 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."
Coming up with the down payment
The bigger your down payment, the less interest you'll pay over the life of your mortgage. To help build your savings balance, BMO Harris Bank offers Auto Save, allowing you to save money automatically by transferring funds from your BMO Harris checking account into your savings account.
Additionally, in order to make homeownership even more affordable, there are numerous programs available to assist qualified home buyers with down payments, closing costs, and even monthly payments.
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:
- Loan term options – The shorter the life of the mortgage, the lower the overall cost. You may want to consider choosing a 20-year mortgage rather than a 30-year mortgage 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 interest rate to stress-test your budget; total housing costs (mortgage payments, property taxes, 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 pay for your home. Consider the following benefits to getting pre-approved:
- Protected from rate changes – The fixed or variable rate you're quoted is established up front and protected for 120 days, giving you peace of mind if mortgage rates rise while you're still searching. What's more, if rates fall during the 120-day preapproval period you may benefit from a lower interest rate.
- 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 out of your affordability range. Your term and amortization, as well as estimated monthly payments, are set 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.
Some lenders only offer pre-qualification for potential homebuyers, which may not include an evaluation of the borrower's credit. Getting pre-approved to buy gives the potential homebuyer that security that the lender has evaluated the borrower's credit and issued a firm commitment letter. This pre-approval will strengthen your negotiating power with sellers.
BMO Harris Bank is committed to helping you learn more about your money by offering seminars and events as part of our Helping Make Money Make Sense series. Visit http://www.helpingmakemoneymakesense.com to find a listing of upcoming First Time Homebuyer Seminars.
About BMO Harris Bank
Based in Chicago, BMO Harris Bank N.A. provides a broad range of personal banking products and solutions through approximately 700 branches and approximately 1,350 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. 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 1,600 branches, and a retail deposit base of approximately $180 billion. Equal Housing Lender.NMLS#401052.
SOURCE BMO Harris Bank