Buying Your First Home - Assessing Your Options and Your Self
Buying your first home can be one of the most fulfilling experiences you will ever have in your life. However, it is not a simple process. Buying a home and getting a mortgage loan and home insurance can be very confusing especially if you are a first-time mortgage buyer. When you are buying a home, you need to get your priorities straight and know the right steps, especially since it is a costly investment.
Buying a home as an investment
The biggest advantage of buying your own house instead of renting is that the property you buy becomes your investment. This means that it is included in your assets and it increases your equity and your ability to borrow credit. You can also convert your property to cash later on should there be a need to do so. The first step in buying a home is to understand the mortgage plans available for your particular needs and financial situation.
The common types of home loans
The most common types of loan programs include the fifteen-year fixed rate mortgage, thirty-year fixed rate mortgage, and the adjustable rate loan program. In a fifteen-year fixed rate home loan program, you have to pay a fixed amount for the entire life of the term which is set to fifteen years. This means that the mortgage payments including the taxes and buildings and contents insurance are equally divided to fifteen years and further divided equally to twelve months. You have to pay a total of 180 equal payments spread over a period of 15 years. The thirty-year fixed rate home loan program is similar to the fifteen-year fixed rate but instead of a period of 15 years, the mortgage payments are divided equally to 30 years. This means that you have to make 360 equal payments spread over a period of 30 years. Because of its longevity, monthly mortgage payments are cheaper than the 15-year mortgage. This is mostly the reason why a lot of people opt for the 30-year fixed rate mortgage. However, because the debt is paid off in a longer stretch of time, the total interest paid over the life of the term is higher. As opposed to paying a fixed amount every month of every year, you pay a variable interest rate in the adjustable rate loan program. In this type of program, the rate of interest at the beginning of the loan is usually low but the interest rate will change periodically depending on the prevailing market rates or on a preselected index.
Assessing the home value
To get an idea of the real estate value in the neighborhood, you can go through the classified ads and check out the price range. Checking out the classifieds for real estate will also save you a lot of time in going around the locality and searching for the house that fits your budget and lifestyle. You could check in the newspapers and the internet for the prevailing rates as well as mortgage payment protection quotes.
Three kinds of initial payment
Bear in mind that when you take out a mortgage, you will have to make three different kinds of payments. The first type of payment is the earnest money, which you pay to submit your offer. This is sort of a reservation fee to ensure that you are serious about buying the property. The next payment is the down payment, which is a percentage of the total cost of the house. Commonly, the minimum down payment is 20% of the value of the home. So if you are planning to purchase a $100,000 home, you will have to make a $20,000 down payment. Finally, you have to pay for the closing costs, which covers the paperwork and processing involved in the purchase of the home and the mortgage loan.
Additional considerations
Choosing the best type of loan will depend a lot on the amount of down payment you can put down as well as your financial income and life insurance and mortgages. When buying a house, aside from financial considerations, you should inspect other relevant details such as the traffic volume, the condition of the roads, safety, and the presence of schools in the neighborhood.
Looking at first-time home buyer loans
There are also mortgage loan programs designed for the first time buyers. Most states offer a home buying grant for first-time buyers. However, with the recent mortgage crisis, lenders are more careful in giving out loans. There are more restrictions than in the recent past and you need a good credit score in order to qualify for a mortgage loan, whether you are a first time buyer or not. If you are a first time buyer, the best route to take when taking out a mortgage is to concentrate on cleaning up your credit report and boosting your credit score. This means that you have to straighten out your debts and credit cards. Start saving money for the down payment of the house you wish to buy. Lenders are more willing to loan you money if you have sufficient cash reserves. Also, this decreases the total interest you have to pay in the life of the loan as well as your mortgage payments insurance.
Assessing your finances as well as yourself
Before buying a home, you have to be sure that you’re ready not only in financial terms, but also in psychological and emotional terms. You can’t let your emotions override your decisions. If you find your dream house and you feel you must absolutely buy it, you have to think reasonably if you can afford to buy the house or if you’re going to be stuck in debt and be miserable about it for the rest of your life. It is important to take the time to think about one of the most important and life-changing purchases you will ever make in your life.
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