Why should I buy, instead of rent?
Answer: A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home may go up over the years. Finally, you’ll enjoy having something that’s all yours – a home where your own personal style will tell the world who you are.
How much money will I have to come up with to buy a home?
Answer: Well, that depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover three costs: earnest money – the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house; the down payment, a percentage of the cost of the home that you must pay when you go to settlement; and closing costs, the costs associated with processing the paperwork to buy a house.
The more money you can put into your down payment, the lower your mortgage payments will be. Some types of loans require 10-20% of the purchase price. That’s why many first-time homebuyers turn to FHA for help. FHA loans require only 3% down – and sometimes less.
Closing costs – which you will pay at settlement – average 3-4% of the price of your home. These costs cover various fees your lender charges and other processing expenses. When you apply for your loan, your lender will give you an estimate of the closing costs, so you won’t be caught by surprise.
How do I know if I can get a loan?
Answer: Use our simple mortgage calculators to see how much mortgage you could pay – that’s a good start.
In addition to the mortgage payment, what other costs do I need to consider?
Answer: Well, of course you’ll have your monthly utilities. In addition, you might have homeowner association dues. You’ll definitely have property taxes, and you also may have city or county taxes. Taxes normally are rolled into your mortgage payment. Again, your broker will be able to help you anticipate these costs.
So what will my mortgage cover?
Answer: Most loans have 4 parts: principal: the repayment of the amount you actually borrowed; interest: payment to the lender for the money you’ve borrowed; homeowners insurance: a monthly amount to insure the property against loss from fire, smoke, theft, and other hazards required by most lenders; and property taxes: the annual city/county taxes assessed on your property, divided by the number of mortgage payments you make in a year. Most loans are for 30 years, although 15 year loans are available, too. During the life of the loan, you’ll pay far more in interest than you will in principal – sometimes two or three times more! Because of the way loans are structured, in the first years you’ll be paying mostly interest in your monthly payments. In the final years, you’ll be paying mostly principal.
What do I need to take with me when I apply for a mortgage?
Answer: Good question! If you have everything with you when you visit your lender, you’ll save a good deal of time. You should have:
- social security numbers for both you and your spouse, if both of you are applying for the loan;
- copies of your checking and savings account statements for the past 6 months;
- evidence of any other assets like bonds or stocks;
- a recent paycheck stub detailing your earnings;
- a list of all credit card accounts and the approximate monthly amounts owed on each;
- a list of account numbers and balances due on outstanding loans, such as car loans;
- copies of your last 2 years’ income tax statements; and
- the name and address of someone who can verify your employment.
Depending on your lender, you may be asked for other information.
I know there are lots of types of mortgages – how do I know which one is best for me?
Answer: You’re right – there are many types of mortgages, and the more you know about them before you start, the better. Most people use a fixed-rate mortgage. In a fixed rate mortgage, your interest rate stays the same for the term of the mortgage, which normally is 30 years. The advantage of a fixed-rate mortgage is that you always know exactly how much your mortgage payment will be, and you can plan for it. There are several government mortgage programs,including the Veteran’s Administration’s programs and the Department of Agriculture’s programs. Most people have heard of FHA mortgages. FHA doesn’t actually make loans. Instead, it insures loans so that if buyers default for some reason, the lenders will get their money.