In order to purchase a home, people must have cash for a down payment. Unfortunately, many people have other obligations and debts that make it difficult to save the type of money that is needed. This is why one of the first steps to buying a home is to save for the down payment. In most cases, lenders require a twenty percent down payment. Buyers may choose to open a savings account in advance, or the down payment may be given as a monetary gift from a family member.
Consumers who carry credit card balances cannot deduct the interest paid, which can cost as much as 18 percent to 22 percent. Equity loan interest is often much less and it is deductible. For many homeowners, it makes sense to pay off this kind of debt with a home equity loan. Consumers can borrow against a home's equity for a variety of reasons such as home improvement, college, medical or starting a new business. Some state laws restrict home equity loans.
What to do instead: Focus on what monthly payment you can afford rather than fixating on the maximum loan amount you qualify for. Just because you can qualify for a $300,000 loan, that doesn’t mean you can afford the monthly payments that come with it. Factor in your other obligations that don’t show on a credit report when determining how much house you can afford.
Homeowners insurance is a contract that protects both you and your lender in case of loss or damage to your property. The contract is known as an insurance policy, and the periodic payment is known as an insurance premium. The monthly homeowners insurance premium is often included as part of the monthly mortgage payment, with the insurance portion of the payment going into your escrow account.
Once all of the above steps are completed, you’ll be on your way to the closing table. This is when the deed to the home is transferred from the seller to the buyer. Every transaction varies, but plan to sign a ton of paperwork. An attorney or settlement agent will guide you through the process. Then you’ll officially be a homeowner and receive the keys to your new home. Congrats!
FHA loan: Depending on property location and other, personal factors, you could qualify for a home loan from the Federal Housing Administration. In most cases, you'd be expected to make a down payment of approximately 3.5% (with a 1.75% insurance premium, and at a 4.25% interest rate). A down payment on our $300,000 model: $10,500. Together with closing costs and a buffer, savings required would be $26,916-$28,416. Notice, however, that you're paying a great deal more than in the non-FHA model when it come to the higher mortgage-insurance premiums -- some $43,485 over 103 months. Still, the FHA plan may be more manageable for some, as the initial down payment is smaller and insurance payments are spread out.
PMI stands for private mortgage insurance. As part of qualifying for a conventional loan, you will have to get PMI if you put down less than 20%. Once your equity in your home reaches 20%, you can get the PMI removed (lowering your monthly mortgage payment). However, with an FHA loan, the insurance stays on the loan for the life of the loan, regardless of the equity in the loan. The private insurance on an FHA loan is called mortgage insurance premium (MIP). There is no way to avoid MIP on an FHA loan.
2. How much house can you afford? How good your finances look from a mortgage lender’s perspective isn’t the only thing to examine. You should also look at savings that can be used toward a down payment and determine how much you’d be able to afford on a monthly basis for your principal mortgage payment, interest, taxes and insurance, which Dabit recommends calculating as 28 percent of your gross income. “That’ll help you figure out how much you can borrow and sustain long-term,” he says.
Wirtz says one of the things in a home that seems to always break or have issues within the first year of its purchase is the air conditioner. But it’s not always because it breaks down – she says it simply might not be as effective as the new homeowner wants it to be. “It may not be cooling like they’re used to,” Wirtz says. You can either learn to deal with a little less cooling, bring in an HVAC pro to inspect and fix any problems or research any DIY fixes that might get it cooling better – like air conditioner cleaning spray.
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While getting legal aid is optional, it is always better to get a professional legal opinion on your closing documents. The complex jargon often mentioned in the property documents is difficult to understand even for the well-educated individuals. For an appropriate fee, opinion from an experienced real estate attorney can offer multiple benefits, including hints of any potential problems in the paperwork. In some states, an attorney's involvement may eventually be required by law to handle the closing.
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A mortgage is defined as a secured loan that uses your home as collateral. The key here is to identify what monthly mortgage payment you can afford without losing any sleep at night. Expect that figure to be around 15%-to-30% of your monthly income (depending on your local tax rates and the amount of your homeowner insurance). This step ties into step one -- the more money you save, the less you'll have to pay on your mortgage loan interest (see next step below.)
Because while house hunting for the first time can be exciting, tales of regretful home-buying mistakes and the not-so-distant housing market meltdown have also given it a bad rap for being a stressful and confusing process. It doesn't have to be—that's why we created this handy nine-step checklist, which helps explain how to prepare to buy a house—and help safeguard your finances in the process.
What to do instead: Ask your real estate agent to help you track down neighborhood crime stats and school ratings. Measure the drive from the neighborhood to your job to gauge commuting time and proximity to public transportation. Visit the neighborhood at different times to get a sense of traffic, neighbor interactions and the overall vibe to see if it’s an area that appeals to you.
A first-time homebuyer is defined as a buyer who has not bought a home over the past three years. In that sense, bounce-back buyers, those who had a short sale or foreclosure, are also entering the marketplace. A CoreLogic report says about one-fourth of all foreclosure and short sale homeowners are back in the market, and those numbers average about 150,000 per year.
Next, decide which mortgage makes the most sense for you. There are plenty of different options to consider. Although Gilmour advises choosing one of the most common two: a fixed-rate mortgage, in which your interest rate remains steady for the duration of the loan, or an adjustable rate mortgage (ARM), in which your rate fluctuates to reflect market changes.
Let the serious shopping begin! By now you’ve talked things over with your agent and you both know what you really want and need in a home. Armed with this, your price range and knowledge of the local area, look at listings online and with your agent, who will come up with properties for you to tour. Chances are you’ll discover some new things to love or hate about homes and refine your search.
The journey to homeownership can have its ups and downs. But for most, the ride is well worth it. According to the Bank of America 2017 Homebuyer Insights Report, nearly three-quarters of first-time buyers say their home has had a positive, long-term impact on their finances. Hop on to learn the process inside and out—from creating a budget to prequalifying for a mortgage to closing the loan on a home of your own.
After you’ve found some homes for sale in your price range, be careful not to make a decision based on the property alone. According to a NAR survey, 78% of home buyers believe neighborhood quality is more important than the size of a home. And 57% of buyers would opt for a shorter commute over a larger yard.(4) So make sure you factor neighborhood quality and location into your decision.
Getting pre-qualified for a home loan is a critical step in the mortgage process. Do so by approaching a mortgage lender or a bank and provide them with the necessary loan document information to get approved for a home loan. That includes your annual income, your household debt and your household assets -- and in some cases, your tax returns (especially if you own your own business.) Once you provide this information to a lender, they'll review your data and come back with a mortgage amount you're likely qualified to obtain. Normally, there is no cost to you for a mortgage pre-qualification, and you won't likely undergo a credit check -- not yet, anyway.
Pre-approval requires the lender to pull the credit information (see Step 1) and assess your financial situation. The lender will then give you a letter that states the amount they would be willing to lend you. If you get in a multiple-offer scenario, being pre-approved may give you an edge because the seller will have more confidence that you will be approved for a loan large enough to purchase their home.
All too often it feels like the problems in a home have a snowballing effect, but you don’t have to go broke tackling them all at once. “Day one, [homeowners] won’t have to tackle all those projects,” Hunter says. “They can use the list of items found by the home inspector as a checklist and prioritize the items on that list and create a budget.” You should immediately address those problems that create a health or safety issue, such as a broken step or leak in your roof that could lead to mold. But replacing an older dishwasher can wait until next year, when you have more room in your home repair budget.
For most buyers, this is when the butterflies really show up. Once you’ve found a home you want your agent will work with you to craft an offer. Remember, the listing price is only a starting point. Your agent will understand the market and help guide you to make the most attractive offer, whether it’s below, at or above listing price. Are there any contingencies to your offer? Will you require an inspection? These are all things your agent will help you with. Once you’ve submitted the offer you get to wait. It will seem interminable. You may get neither a simple yes or no but a counteroffer to consider. It can be something of a dance. If you get a solid “no,” it’s back to Step 5. If you get to a “yes,” celebrate!
Chances are your home inspection report will turn up some problems with the home — but, keep in mind, not all repairs are created equal. There are major issues that will likely need to be dealt with before a lender will honor a home loan, such as structural problems and building code violations. In these cases, the homeowner is responsible for repairs before the sale can go through.