Mortgage Loan Applications Are A Necessary Pain

Before we get too far ahead in our quest to downsize homes, I thought it would be good for all involved if we first got prequalified on an amount well within our frugal household budget.  We submitted a mortgage application with a credit union we’ve been members of for many years and will hopefully hear something back from them next week.

The mortgage we applied for requires only 5% down with no PMI, something that is attractive to us since we don’t have a lot of cash to put down until our other house sells.  When it does, we’ll probably just put it on the mortgage balance so we can pay it off fast.

15-Year Versus 30-Year Mortgage

Though we are taking out a 30-year mortgage we plan to pay off the new house in ten years.  It’s an aggressive plan, but one we think we can hit from downsizing, using a little equity from our current home, and devoting some additional income to prepay the mortgage.

Payment Less Than 20% Of Income

To guarantee plenty of disposable income we are planning to bid on a home that will leave 80% of our monthly take-home pay available for other things.  Lenders will typically loan more than this, sometimes up to 28% of your gross income, but for us this would not leave enough money for other goals (though some months we will be dedicating much more than this to extra payments).

Hopefully, we will get some good news on pre-qualification and can start looking at houses in our price range next week.