How to Make an Austin, TX, Mortgage Work for You

Purchasing a new home is an excellent investment, but only when you protect yourself in the process. Many people listen solely to their realtor or lender and end up in trouble because they borrowed more than they could really afford. Here are three steps you must follow to ensure your Austin, TX, mortgage favors you.

Find the Right Company

Before you apply for a mortgage in Austin, TX, look at the financial institutions track record. How long have they been handling mortgage loans? What does the Better Business Bureau have to say about them?

There are differences between a mortgage lender and a mortgage broker. A lender represents the bank or credit union he or she works for. A mortgage broker works for you and negotiates with different financial institutions to find the best deal for your needs. Mortgage brokers often have higher fees, but the savings you obtain over the life of your mortgage usually makes up for this. A mortgage broker can be a very wise decision, but make sure you understand the fees going in. Again, look for reviews and BBB.org ratings before agreeing to anything.

Understand Exactly How Much You Can Afford

When you're shopping for a new home, the price difference between that three-bedroom Austin home for $215,000 may not seem too excessive compared to that $200,000 two-bedroom home. Based on a 30 year loan and 4% interest rate, if you put 20% down, the mortgage payment on the two bedroom home would come to approximately $764 per month. Using the down payment and interest rate, the mortgage payment on the three bedroom home would be just under $822 per month.

The golden rule for mortgage loans in Texas is that your debt to income ratio must not be more than 43 percent and most banks believe your mortgage payment should not be more than 28 percent of your monthly income. Using the example above, a mortgage payment of $822 requires a monthly income of approximately $2,950 or an hourly rate of $17. To afford the $764 payment, you'd need a monthly income of $2.730 or an hourly rate of $15.75. This difference can be substantial, especially if you live in an area where real estate taxes, homeowners insurance, or utility bills are higher than average and known to increase regularly.

Shop Around

Before you apply for a mortgage in Austin, Texas, shop around. Compare the interest rates, appraisal fees, and loan origination fees you are quoted. They can vary greatly and by shopping around, you'll save money finding the best interest rate and fees for your budget.