This Was the Average Mortgage Amount in March. Can You Afford It?
Home prices have been rising -- and so have mortgage loans.
Most people who want to buy a home can't just purchase one in cash. Rather, they need to finance it through a mortgage lender and pay that loan off over time.
But home values across the country have skyrocketed over the past number of months. In March, the average mortgage taken out for a new home purchase came to an incredible $374,000, according to the Mortgage Bankers Association.
If you're looking to buy a home today, you'll need to pay up and take out a larger mortgage than usual. But here are some steps you can take to make your home loan payments more affordable.
Make a larger down payment
If you're applying for a conventional mortgage, your lender will insist on a certain minimum down payment. In some cases, you might get away with putting down as little as 5%, but in general, you should expect to put down at least 10%. But even if a lender is willing to give you a conventional mortgage with 5% or 10% down, it's a good idea to make a 20% down payment if possible. This will help you avoid private mortgage insurance (PMI).
PMI is a premium that gets tacked on to your monthly mortgage payment when you don't put down 20%. It can equal up to 1% of your loan balance. If you borrow $374,000, you could pay an extra $3,740 a year, or over $300 a month extra. Talk about a strain on your budget.
The more money you put down on a home, the less money you'll pay on an ongoing basis to cover your mortgage. Now one thing you don't want to do is make such a high down payment that you leave yourself with little money left over for emergencies or other home-related expenses, like renovations and repairs. If you're not sure how much to put down, you can use a mortgage calculator to run some numbers and see what your monthly payments look like in different scenarios.
And if it seems like a down payment is too much, a conventional mortgage may not be your best option. To learn more about alternatives, read all about how to buy a house with zero down payment.
Make sure you're a good mortgage candidate
The stronger a mortgage candidate you are, the more likely you'll be able to snag a low interest rate on your home loan. You'll have an easier time qualifying for a competitive mortgage rate if you have:
- A high credit score -- ideally in the mid-700s or above
- A low debt-to-income ratio
- A healthy level of cash reserves
If you can't check these items off of your list, then you may want to hit pause on your home search. There are numerous resources available to help improve your personal finances, including:
Taking the time to build up your finances could result in big savings on your mortgage. But if you can't wait, then you may want to look into how to get a mortgage with bad credit
Given the way home values have soared recently, the fact that mortgage borrowers are taking out larger loans isn't surprising. If you want to keep your monthly payments to a minimum, do everything you can to make sure you get as low a mortgage rate as possible.
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