This article is an excerpt from the Shortform book guide to "The Automatic Millionaire" by David Bach. Shortform has the world's best summaries and analyses of books you should be reading.
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Are you considering taking out a mortgage? What are some things you should take into account when choosing your mortgage repayment plan?
Shopping for mortgage plans and trying to get your head around the legal terms may not be your idea of fun, but it’s essential to hunting down those bargains. To get the best deal, you must do your due diligence and research mortgage providers to compare interest rates and figure out how much you can afford to spend on a home.
In this article, we’ll take a look at some things you should take into account when choosing your mortgage plan, and discuss the options available to you.
Choosing a Mortgage Payment Plan
In The Automatic Millionaire, Bach claims that you should be able to spend between 29-41% of your gross income on housing expenses—which include your mortgage, taxes, and insurance. Aim for the minimum if you still have debts to clear and more if you don’t have any debts to pay off. For example, if your salary is $40,000 a year, you can afford to pay from $11,600 a year ($967 a month) to $16,400 a year ($1,367 a month) towards all of your housing expenses.
(Shortform note: In addition to Bach’s suggestions, Pape claims that it’s crucial to also factor lifestyle changes into your housing expenses before you decide to buy a house. For example, if you have children, your expenses will increase significantly—you’ll either have to pay for childcare or reduce your working hours to care for the children, and this will impact your ability to keep up with mortgage payments.)
| Mortgage Resources and Advice While Bach recommends some mortgage rate resources in the book, many of these are now out of date. The following list of recommended mortgage loan providers (2021) provides the latest expert recommendations: Quicken Loans SoFi LoanDepot New American Funding Reali Citi Mortgage Guaranteed Rate Chase Busey Bank PennyMac In order to receive an accurate quote from these resources—loans are tailored to your credit history and what you can afford—you’ll find it useful to gather the following documents before beginning your research: Tax returns Proof of income Bank statements Investment statements including savings and retirement plans Debt records including student loans and car loans Recent utility payment statements Renting history Gift letters to indicate funds that have been gifted towards your home purchase Child support or alimony documentation Bankruptcy records When you research interest rates, make sure you also factor in the following costs as they can add a substantial amount to your overall loan: Application fee Credit report fee—non-negotiable Appraisal fee—non-negotiable Underwriting fee Property taxes—non-negotiable Government fees—non-negotiable Service fee |
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Like what you just read? Read the rest of the world's best book summary and analysis of David Bach's "The Automatic Millionaire" at Shortform .
Here's what you'll find in our full The Automatic Millionaire summary :
- A simple but powerful action plan for you to quickly automate your finances
- How to grow your finances with just a few dollars a day
- An exploration of why people fail to prepare for their financial futures
