Proper Mortgage Planning for Beginners

Congratulations on your decision to buy a home! With the home, the initial mortgage is most likely a sobering occasion, especially considering just how much money you agree to pay over the next few decades. When you add the financial responsibility that comes with home ownership to the amount of the monthly mortgage payment, it may sometimes be a somewhat scary proposition. This is especially true for a first time home buyer who might not be exactly certain what to expect and how to deal with the unexpected. Sure, budgeting and planning are important features for any family’s money management, but for a homeowner there is a lot more tied to making healthy and helpful fiscal decisions.

Before you head down to the bank to apply for a mortgage, budget for the nitty gritty of home ownership. As a homeowner, you no longer have a landlord who can be called when something breaks. With yourself as the landlord, you now must have sufficient reserves to foot the bills of plumbing emergencies, wiring disasters, and also phone line rerouting. It is a good idea to set up a separate, interest bearing savings account into which a predetermined monthly amount of money is placed. This kind of money is less for a newer home and more for an older home. Since home purchases usually come with a one year warranty, you can plan on using that first year as a new homeowner to greatly fund the account and prepare yourself for any future emergencies.

Plan for unexpected illnesses, economic downturns, job losses, and other events that may have an impact on your income; mind you, such events do not all have to be negative. In some cases the birth of a child – a joyous occasion that has many would-be homeowners start looking for a place of their own in the first place – will affect your income and add costs which you were previously not thinking of. Make a list of back up solutions to ensure that -- no matter what your life’s situation may be one, three, five or 10 years down the line – you can still afford to live in your home and will not have to uproot your family.

Proper mortgage planning for beginners should also address the contingencies of default. Sure, you are not planning on defaulting on the mortgage, and right now things are looking great. After all, if things were problematic, the bank would not offer to lend you money for the home. Knowing what defaulting actually means, however, can help would-be homeowners understand their legal rights, obligations, and also the rights of the lender, and then plan accordingly. For example, did you know that you have a 15 day grace period during which you are expected to make your payment? On day 16, your lender can ask for a late fee to be paid. The amount of the charge is determined in your loan paperwork, and reading ahead of time how much you will have to pay will make the decision to be on time a lot easier.

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