As mentioned in the earlier posts, everyone of us wants to own a home; his/ her dream home. Whether to Buy a house, which costs a very heavy amount Or to rent a house is a matter of personal perception and financial affordability. People are having different views and their own reasoning for and against this issue. But having your own home is definitely has lot many advantages, especially it gives a sense of security and a sense of pride to the owner. It also gives a sense of achievement as well as belongingness. In the long run, owning or buying a house may even cost less than renting. Therefore, in the advanced age, especially when you are nearing retirement, say about a decade away from that D-day, one must try to buy a house, if he has not done so far.
Financing Your Home : –
After you have considered all the relevant points like your financial health, figure out your timeline and compare the renting costs to owning costs, you need to confront the tough task of arranging the finance for your home. Buying a home is a huge investment, probably the most significant purchase of your life. It’s not something you should do without preparation. Before you start on the road to home ownership, make sure you are ready. (Pl. refer Points for consideration in my last post on Real Estate). Some of the important steps, you must take, before you buy a house, are given below : –
Some Simple Steps To Buying A House : –
Step 1 – Improve Your Credit Score : – A score of 700 to 720 will get you a good deal, and 750 and above will garner the best rates on the market. Better stop applying for new credit a year before you apply for a mortgage.
Step 2 : – Figure Out What You Can Afford : -For conventional loans, home expenses should not exceed 28 percent of your gross monthly income and for FHA loan, this limit is 31 percent.
Step 3 : – Save for Down Payment, closing Costs : – Normally, the down payment terms vary between 3 to 20 percent of your loan amount. Your credit score and loan terms help determine how much you’ll need to make the down payment.
Step 4 : – Build a Healthy Savings Account : – Building up your savings not just for your home, is very important. That money will also help pay for maintenance and repairs of the home.
Step 5 : – Get Pre-approved For A Mortgage ; – Before you start house shopping, you should get your financing in place. Better have everything in order. You should get a mortgage pre-approval, before you buy your house
Step 6 : – Buy A House You Like : – To get a house that will make you happy, don’t count on a quick purchase. Step back and make certain the house you’re considering is one that will fit the needs of you and your family..
Different Options For Home Financing ; –
For financing the home, most of the people depend on Debt (unless you are independently wealthy). A mortgage loan from a bank or other sources makes up the difference between the amount of Down payment, you intend to make and the agreed upon price of the house.
There are Two major types of mortgages : –
1 Fixed Rate Mortgage : — This has interest rates that never ,ever changes and are usually issued for a 15 to 30 years period. The interest rate you pay the first month is the same rate you pay the last month. With a fixed rate mortgage, your monthly mortgage expenses is certain.
2 Adjustable- Rate Mortgage (ARM) : – It carries an interest rate that varies over time. Thus, your monthly payment fluctuates. But the attraction of ARMs is the potential interest savings, when the interest rate drops. But when the rates rise and stay elevated, the adjustable loan can cost you more than a fixed-rate loan.
Choosing Between Fixed And Adjustable Rates ; —
Before deciding which kind of mortgage– Fixed or Adjustable– you must consider the following : –
- How willing and able are you to take on financial risk ?
2 How long do you plan to keep the mortgage?. With a duration of 15 to 30 years, Fixed interest rate may be better.
HYBRID Loan : – This combine features of both the Fixed -and- Adjustable rate mortgages. For example, the initial rate may hold constant for a period of three to five years- and then adjust once a year or every six months thereafter.
Find Funds To Boost your Down- Payment : —
Many cities and states offer Down payment Assistance (DAP) for first- time home buyers. These programs can offer money as much as $75,000 to go toward your down payment. But some restrictions and conditions are imposed (you may check the details)
Understanding Other Lender Fees : —
Lenders, generally charge other up- front fees when processing your loan. You need to know these charges and compare different mortgages and determine how much completing your home purchase is going to cost you.
1 Application And Processing Fees : – Most lenders charge several hundred dollars to complete your paperwork and to process it.
2 Credit Report : – Many lenders charge a fee (about $50 to $75) for obtaining a copy of your credit report.
3 Appraisals : – For most residential properties, the appraisal cost is typically several hundred dollars.
4 Title And Escrow Charges : – These are also charged by the lenders in addition to other fees/ charges.
Beware Of Prepayment Penalties ; –
Avoid loans with prepayment penalties, You pay this charge, usually 2 to 3 percent of the loan amount, when you pay off your loan before you’re supposed to. The only way to know whether a loan has a prepayment penalty is to ask. If the answer is Yes, find yourself another mortgage.
Avoiding The Down- payment Problems : –
You can generally qualify for the most favourable mortgage terms by making a down-payment of at least 20 percent of the purchase price. This will save money on interest. But many people don’t have this amount ti make down payment of 20 percent or more. In such case, the following steps will help : –
1 Go on a spending diet. Cut back on your spending.
2 Consider lower priced properties, requiring less down- payment.
3 Find partners- buy building in partnership.
4 Seek reduced down-payment financing. But have solid credit to qualify for such loans.
5 Get assistance from family. You can pay them an interest.