The ABCs of Getting a Mortgage Loan for First-Timers

Posted on: 14 June 2017

If you have been shopping for a new home lately, then you may be trying to decide between a few different houses the you like. If you need to make a choice between a large home that needs a great deal of work and a new home that is smaller, then the small one may just be your best option. While most people opt for larger homes because they think they can afford it, there are quite a few financial reasons why a small home might be better.

Less Of A Risk

Smaller houses simply cost less to purchase when compared to larger homes. Larger homes are more in demand and are pricier when you look at the cost per square footage. The cheapest homes are ones that are below 1,000 square feet, and these houses are often perfect for couples or minimalist families. If you go with a small house, then you acquire less debt. This places you less at risk financially. 

Real estate agents and online calculators will typically state that you should be spending about 25% of your free monthly income on a mortgage payment. However, this can severely limit your ability to save for retirement, take vacations with your family, or purchase a new car or motor home in the future. Since most mortgages are 30 year ones, then you may be tied to the same lifestyle unless you or your spouse makes substantially more money.

While some people are more than willing to put one-quarter of their free money into a home, your lifestyle or future may require a bit more financial freedom. If this is true, then a small home can easily fit into a 15% range when it comes to your overall free monthly income. 

Cheaper To Heat

If you live in the northern part of the country, then you likely understand that heating costs are high. If you have been renting for some time, then this fact may have escaped you, since heat is often included with rentals. Heating costs can come close to or exceed $4,000 a year. If you are not expecting this cost, which can end out to be an extra $500 or more a year, then you might be in for a shock. Smaller houses are obviously less expensive to heat. If your home is about two-thirds the size of a traditional home, then your heating bill will be two-thirds that of a larger home. 

A newer and smaller home is likely to be more insulated, so this can increase your savings substantially. This is also true of air conditioning costs for new homes in warmer areas. You also need to consider that electricity will be cheaper as well, since you will not have room for as many appliances and lights.