When moving to a new house from an apartment – or when moving to a larger home – it can be exciting and costly at the same time. When it comes time to furnish your new home, you may feel overwhelmed by the costs of furniture and wonder, “Can I borrow extra on my mortgage to buy furniture?”
How to Qualify for Extra Borrowing on Your Mortgage
It is possible to borrow extra on your mortgage to cover costs such as furniture, renovations, and closing costs. The ease of increasing the amount you borrow will depend on your income and the amount of your down payment. Generally, mortgage lenders will not issue a loan unless your payments are less than 28% of your current gross income. If the extra borrowing on your mortgage pushes you over this percentage, you may have difficulty securing that additional amount.
You also run the risk of having to pay private mortgage insurance (PMI) if the extra borrowing makes it difficult for you to manage a 20% down payment. Adding the cost of your private mortgage insurance to your monthly expenses may not be feasible, and it can add up significantly over time, especially if it is required for the entire loan duration.
Note: Some mortgage lenders will allow you to cancel your private mortgage insurance once you have paid down a certain amount of your home loan.
Pros and Cons of Borrowing Extra on Your Mortgage for Furniture
Pros:
- You can consolidate debt: Instead of taking on new debts like personal loans, you can consolidate debt into a mortgage loan.
- Mortgage rates may be lower than store financing: You may save money by borrowing from a mortgage lender instead of a furniture store.
- You can furnish your new home faster: If you need the furniture as soon as possible, borrowing a larger amount may be worthwhile.
Cons:
- You may pay interest for up to 30 years: The added cost of interest on a 30-year mortgage can exceed what you pay for the furniture.
- A larger down payment may be required: Adding furniture costs to a new mortgage increases the required down payment amount.
- Additional borrowing may lead to your private mortgage insurance: If you cannot afford a 20% down payment with the added furniture costs, you will incur these additional insurance fees.
Should You Borrow Extra on Your Mortgage for Furniture?
If you are unsure whether you should borrow an additional amount on your mortgage to finance furniture costs, it may be helpful to calculate the numbers to see if this is a financial decision you can afford. Adding these costs to your mortgage will increase your monthly loan payment and affect your monthly budgets.
It is important to remember that there are other costs that come with homeownership beyond mortgage payments, such as utility bills, maintenance, property taxes, and homeowner’s insurance. Make sure you can afford all these necessities before increasing your mortgage amount.
The additional cost of adding furniture to the mortgage may be offset by an increased investment value of antique or collectible furniture, and this right can be used as collateral.
Alternative Ways to Finance Furniture Purchases
If you decide not to add the furniture costs to your mortgage, here are some alternative options:
- Home equity loans: If you can delay purchasing furniture, it may be easier to obtain a home equity loan once you build some equity in the home. But be careful here as the equity you have in your home secures this loan. If you default on the loan, the bank can seize your home.
- Line
- Home Equity Line of Credit (HELOC): Similar to a mortgage loan, a home equity line of credit is secured by your home and acts like a line of credit that you can use to purchase items like furniture. The benefit here is that you will only be responsible for the amount you borrow plus interest.
- Personal Loan: A personal loan can be used to finance a variety of purchases, including furniture. You might find that once you settle into your home, getting a small personal loan can help you buy furniture.
- Credit Cards: You can also use a credit card to finance payments for furniture purchases. Interest rates and fees on credit cards can add up quickly, so make sure to have a plan for paying off your credit card balance on time.
Note: By using a credit card with a promotional fixed annual interest rate of 0%, you can borrow without interest for a temporary period.
Budgeting and Saving
If you can be patient or have time to plan before buying a home, budgeting for furniture is a way to save money, as you won’t need to pay any interest or fees to borrow.
Do some furniture shopping online or in stores, but don’t purchase anything just yet. Get an idea of the costs you will need to cover to furnish your home so you can create a budget based on your income. After that, you can either buy all the furniture you need piece by piece each month or save up and buy everything all at once.
Frequently Asked Questions
How much can I borrow on a mortgage?
The amount of mortgage you can obtain and carry will vary significantly depending on your income and the amount of loan needed. You can go through the pre-qualification process with several lenders to get an idea of how much you might qualify to borrow before you start shopping for a home.
What are current mortgage rates?
Mortgage rates change all the time, so it’s best to look for the latest mortgage rates in real-time. This handy tool from the Consumer Financial Protection Bureau can give you an idea of average mortgage rates in your area based on your credit score, loan type, home price, and down payment amount.
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Sources:
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and ensure the accuracy, reliability, and quality of our content.
US Bank. “How much can I afford for a home?”
Citizens Bank. “Can I borrow extra?”
Bank of America. “Two smart moves for buying a home: mortgage pre-qualification and pre-approval.”
Source: https://www.thebalancemoney.com/can-you-borrow-extra-on-your-mortgage-to-pay-for-furniture-5272065
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