IRS Publication 530 contains tax information for first-time home buyers. Real estate property taxes paid for a first home and a vacation home are fully deductible for income tax purposes. In California, the passage of Proposition 13 in 1978 established the amount of assessed value after property changes hands and limited property tax increases to 2 percent per year or the rate of inflation, whichever is less.
The title company and escrow company will also send you documents to review. The title company will send you the title insurance commitment showing that the party who has title is in fact the seller, in addition to any liens on the title. You should review this document and so should your attorney if you have one. The escrow company will also review it to make sure it says what it should say.
Buying a home is exciting, especially when you're buying for the first time. In the midst of all of the excitement, it's easy to become blinded by beautiful back-splashes, granite and quartz counter tops, hardwood floors, and fenced-in backyards. While looking at homes that are completely perfect from top to bottom, you may begin to rationalize a larger purchase than you had originally planned for — "This house is perfect for me; it's worth $50,000 extra dollars for me to have a house with enough space in a perfect location," or "We were planning on spending a little bit of money on painting; we can spend $50,000 extra on this house because it doesn't need any work."
3) Save for upfront costs. Ideally, you would be able to put down 20% of your home's purchase price to avoid having to pay PMI (private mortgage insurance). If you can't put down 20%, mortgage companies will usually offer you a smaller "piggy back loan" to help bridge the gap but those loans have higher interest rates. You may also need between 2% to 5% of the purchase price for closing costs plus whatever you want to spend on moving, furnishings and renovations.
From this chronological, step-by-step explanation of the home-buying process, you will learn everything you should be thinking about and doing at each point of the process. Sure, the process may still be difficult, stressful and draining at times, but at least you’ll know what to expect and understand what’s happening at every point along the way. You don’t have to rent forever if you don’t want to. (For resources on deciding if you’re ready to be a homeowner, see To Rent or Buy? The Financial Issues and To Rent or Buy? There’s More to It Than Money.)
Before submitting a purchase offer, request the energy bills from the past 12 months to get an idea of the average monthly cost, suggests Marianne Cusato, an award-winning designer based in Miami, Fla., and co-author of "The Just Right Home." Most utility companies can provide a homeowner copies upon request. “If you are in love with a house and everything else works but the energy bills, have an audit preformed to assess what your options are for making it more energy efficient,” says Cusato. “In many cities the electric company will come out and do the assessment for free.”
What to consider instead: You can put as little as 3 percent down for a conventional mortgage (note: you’ll pay mortgage insurance). Some government-insured loans require 3.5 percent down or zero down, in some cases. Plus, check with your local or state housing programs to see if you qualify for housing assistance programs designed for first-time buyers.
Contingency clauses also offer a form of protection. "A mortgage financing contingency clause protects you if, say, you lose your job and the loan falls through or the appraisal price comes in over the purchase price. Should one of these events occur, the buyer gets back the money he used to secure the property. Without the clause, he can lose that money and still be obligated to buy the house," explains Justin Lopatin, a mortgage planner with American Street Mortgage Co., to MSN.
Most home sale contracts give the buyer about 10 days to complete a home inspection. If you’re getting a mortgage to buy the house, your lender will likely require you to use a certified home inspector. (Even if you’re not required to get a home inspection, it’s best to get one anyway to make sure you’re not buying a house full of expensive problems.)
You can get approved for a home loan by completing a mortgage application. Be prepared to provide proof of your financial data, such as your monthly income, total debt payments, and your credit score. Also, have an idea of how much house you can afford, as well as how much cash you have available for a down payment. Meeting with a mortgage lender before you are ready to purchase a home can also help you set financial goals, such as knowing how much to save up for a down payment, or improving your credit score.
After your offer has been accepted, splurge for a home inspection. Spending even $500 can educate you about the house and help you decide if you really want to pay for necessary repairs. You can also leverage your offer depending on the results of the inspection report and make the seller financially responsible for all or some of the repairs. For more on what to look for, see 10 Reasons You Shouldn't Skip a Home Inspection.
Interest rates, including those offered on mortgage, can be volatile and subject to change. A 0.25 percent rise in interest rate can significantly increase your repayment amount, repayment tenure or both. It is advisable to lock the interest rate for the loan in advance, instead of being at the mercy of the market fluctuations which can be a big risk if the rates rise before you finalize your property purchase. Pre-approved mortgage offers the facility to offer you a rate lock, which means that you can secure a favorable interest rate for the loan. Though chargeable rates are subject to multiple factors, like applicant’s credit score, geographic region, property and the type of loan applied for, attempts to lock in at favorable rates can be beneficial.
Variable rate mortgages are also known as adjustable rate mortgages, float up and down on a regular basis, based on the movement of U.S. Treasury bonds. Treasuries are tied closely to the overall U.S. economy, and ebb and flow based on the health of our nation's economy. Variable rate mortgages typically come with lower interest rates up front, but with the potential of seeing those rates rise after an interim period of five-to-seven years after the mortgage loan is signed.