As mortgage costs start to climb, it may be tempting to try to stretch your budget before you're priced out of the market altogether. What's called for instead is a careful reappraisal of whether it makes more sense to buy now or to wait. If you are determined to test the waters of today's market, start by estimating how much you can afford to borrow. Most mortgage lenders say that, to be manageable, your total monthly payment for principal, interest, mortgage insurance, and property taxes should not exceed between 28 and 36 percent of your family's gross income. To see how sensitive your budget may be to further rate increases, make the calculations based on what lenders are currently charging and on what you could expect to pay if rates were to move up another one-half percentage point before you're ready to commit.
Bidding is briskest on properties that are newly listed.
But remember, homes that have been listed for a while remain unsold for a reason, so don't waive a satisfactory engineer's inspection as a condition of any contract you sign. You can make yourself more attractive to sellers by getting a lender to issue you a preapproval letter for a mortgage. Unlike the less stringent prequalification, a preapproval will include a check of your credit history, your earnings, and your family's financial assets. You need not ultimately choose to finance a purchase with the lender who preapproves you, but to a seller, a preapproval letter puts you on nearly the same ground as a buyer offering to purchase for cash. On average, owners tend to relocate within 6 years of purchasing a house, so one of these longer ARMs could well serve for as long as you remain in your home.