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Mortgage Blog

How to get a home loan

Jim Quist is the president and founder of NewCastle Home Loans. He has 20+ years of mortgage lending experience as a business owner, mortgage underwriter, and loan officer. Jim's goal is to help people buy homes.

Jim Quist is the president and founder of NewCastle Home Loans. He has 20+ years of mortgage lending experience as a business owner, mortgage underwriter, and loan officer. Jim's goal is to help people buy homes.



How Much Can I Realistically Borrow To Buy A Home?


Let’s face it: renting sucks. Forking over rent every month gets old, especially when it feels like there’s not much to show for your money—just some peel-and-stick wallpaper and windows that’ve been painted shut. But, at the same time, buying a home can be so confusing, so daunting, and—more than anything—expensive

If you’re ready to ditch your lease, chances are you’ll be signing the dotted line of a mortgage instead. To prep for that big switch, you'll first need to figure out what you can afford.

Applying for pre-approval is the sure-fire way to make sure you’re on track to buy a home you can actually afford each month. Your credit score, income, available cash for down payment, and other factors like rental and employment history help determine what you’ll qualify for. Then, through our expert vetting process, we’ll give you a preview of how much you can borrow:

How much can I borrow to buy a home? 

You’ll want to take some proactive steps to kick-start your mortgage process and help you decide how much you’ll spend on your home. This initial survey of your financial situation will help both you and your lender determine how much you can afford to borrow for your home. Plus, all this legwork will make you stand out in the market when you’re ready to make an offer.

First, take a look at your finances:

      • Check your credit. This is the first thing a lender will do to determine if you qualify and what interest rate(s) you qualify for. Generally, the better your credit score, the lower your interest rate. Aside from knowing your score, you should review your credit report carefully to make sure there aren’t any errors that might affect your mortgage.

      • Review your spending habits. Take a look at your bank statements for the last two months and make note of unnecessary spending. Some of this cash might be needed for upfront costs.

      • Tally up your recurring payments. Make note of the monthly payments you have to make each month, which typically go toward your debt: student loans, car payments, etc. Your lender will take these into account when calculating how much money you can afford to borrow.

      • Estimate your down payment.  Add up all available funds like savings and investments to see how much you have available for a down payment.

      • Use an online mortgage calculator. Our mortgage calculator will give you a detailed breakdown of your loan amount based on your estimated down payment, current interest rates, etc.

      • Consider the timing. Make sure your loan amount will give you options in your desired area and the current housing market. At the same time, make sure your employment is—and will remain—stable, because your employment history affects your mortgage too. 

Once you’ve completed this survey of your finances, get pre-approved for your mortgage before you find a home:

      • Find a lender. once you've complete a thorough review of your finances, your next step is to find a lender to be pre-approved for your mortgage.

        This pre-approval saves you, your agent, the seller, and your lender an enormous amount of time and money. Plus, having a detailed approval letter from your lender makes your offer much more attractive to the seller, upping your chances that your offer will be accepted.

      • Apply for pre-approval. Apply for pre-approval through a lender like NewCastle. (That's us!)

        We'll check your credit, income, and account balances, then provide you with a detailed pre-approval letter that'll make your offer stand out in the crowded housing market. This pre-approval formalizes how much you can afford to borrow.
      • Send you pre-approval letter to your agent. Once you provide them with your pre-approval letter, your agent will submit the detailed pre-approval with your offer.

        Because our team has gone the extra mile to review your file, the seller will know you're a serious, motivated buyer.

        Get pre-approved

How much will it cost up-front to buy my home? 

Once your offer’s been accepted, it’s time to start thinking about the money you’ll need up-front. In addition to your down payment, you should plan for some significant upfront costs when buying a home:

  • Down payment: Your down payment can range from 0 to 20% (or more) of the total purchase price. By putting more money down, you'll usually see a better interest rate and lower monthly payment.

  • Closing costs: Closing costs typically range from 2% to 4% of the loan amount. You may have the option to roll these costs into the total mortgage loan amount, but this can increase your monthly payment.

  • Mortgage application fees: Also known as service or origination fees, most lenders will charge 1 to 2% of the purchase price as an application fee. Some lenders charge a flat fee instead. 
    At NewCastle, we do things a little differently. While some of our loans carry underwriting fees or required title fees, we’re committed to minimizing your upfront costs. That’s why we don’t charge an application or origination fee—one less charge to worry about.  

  • Underwriting, appraisal, inspections, and credit report fees: These can be charged separately or worked into closing costs.

  • Attorney's fees, title insurance and search fees, as well as city recording fees: These charges ensure that no one else has a legal claim to the property you wish to purchase. They can also be included in closing costs.

  • Earnest money: This is a “good-faith deposit” paid to the seller once your offer is accepted. This money represents your intention to purchase, and can be used as a bargaining tool to convince the owner to accept your offer.

  • Mortgage points: Another great way to reduce your monthly payment is to purchase mortgage points. A mortgage point is prepaid interest and is equal to 1% of the loan amount. For example, 1 point for a $100,000 loan would cost $1,000. Note: this typically applies to fixed-rate loans only.



How much will my home cost each month? 

Just like the upfront costs that come with purchasing a home, there are a few monthly expenses you’ll want to make sure you’re anticipating as a new homeowner:

The bulk of your monthly costs for your home will fall under “PITI”: Principal, Interest, Taxes, and Insurance. It’s this estimated PITI that you see on your loan estimate, and that your lender uses to decide whether you qualify for a mortgage or pre-approval. Your PITI payment will depend on factors like the size of your loan, your down payment amount, and your interest rate. 

  • Your principal and interest payments are the amounts you pay directly toward your loan balance. The principal payment goes toward paying down your principal balance, while the interest payment goes toward your accrued interest. Over time, these payments reduce your overall loan amount until you pay off your home. 

  • Your tax payment goes toward the taxes you owe on your property. For most homeowners, property taxes are the most expensive tax you’ll pay, though this amount varies by location. Property taxes are determined by an official, unbiased appraisal, which your home will undergo before you close.

    As a general rule, plan to pay $1 for every $1,000 of your home’s value in monthly property taxes. If your home is worth $325,000, for example, you’ll pay around $325 per month in property taxes.

  • Your insurance payment(s) helps protect your property and—in some cases—your mortgage. Homeowners insurance covers the structure of our home, your personal possessions, liability protection on your property, and living expenses if you’re temporarily displaced. While homeowners insurance isn’t required by law in most states, your lender will probably require that you maintain a level of property insurance as a condition of your loan.

    Mortgage insurance (PMI) may also be required depending on your loan terms. This insurance is typically required if your down payment was less than 20% of the home’s price. If you default on your loan, this policy will compensate your lender. But there’s good news: it’s not a charge that’ll stick around forever. Your PMI automatically terminates when your loan balance is down to 78% of your property’s appraised value.

Besides PITI, your other costs as a homeowner are a little different than they would be as a renter:

  • Higher utility bills. Utilities are covered entirely by the homeowner, meaning you’ll pay for trash, sewer, water, internet, electric, and/or gas each month. If you’ve been renting for a while, it’s best to plan for an increase in your utility expenses, and make sure you can afford a hike in these essential costs.

  • Repair and maintenance costs. When you own your home, you take on all financial obligations for repairs and maintenance. Minor repairs may be able to wait until you have the cash to handle them; other times, you may find yourself making an expensive, unexpected, and urgent repair. Any number of things may need to be repaired suddenly, like a water heater or appliance replacement, and you’ll need to be financially prepared for these hiccups.

    This is where your home inspection comes in. Having a detailed home inspection before you close will give you a good idea of the condition of your home, along with what repairs may come up sooner rather than later. Keep this inspection in mind as you prioritize expenses after closing.

  • Renovations. Depending on the state of your home at closing, you may find that you need to make significant changes to the property right away. If you know that you’ve got walls to knock down or a bathroom to re-tile, make sure that you factor these costs into your home-buying budget. 

    Get your loan estimate

How do I get started? 

You know what they say: knowledge is power. Now that you know what to expect—you’ve previewed your finances, learned about up-front costs, and reviewed the monthly expenses associated with your mortgage—you’re ready to get pre-approved.

This pre-approval is your next step—and best step!—toward homeownership. 

A detailed pre-approval letter from NewCastle ensures that you’re ready to take on the housing market with confidence, and makes it easier to land the home you’ve always wanted.

We’ve got a team of experts ready to support you every step of the way. Click the link below to get started on your mortgage with NewCastle:

Apply for your pre-approval

 

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