So you have decided to fulfill the American dream of home ownership. What now? Buying a home is the first step towards financial independence in these struggling times. Acquiring the right information can be the difference between this process being a success or a nightmare. There are many horror stories of mortgage loan disasters and frauds, homes not being up to code, or just uninhabitable, and many other situations which can take a first time home buyer by surprise. Let’s go over the basics in home buying, so that you are one step ahead of the game when buying a home, and allowing you to make a conscious and smart decision when looking at which home to buy, and how to buy it.
First, let’s look at the kind of home to buy, for a first time home buyer. Many people, who now rent, especially a medium to large family, want to immediately jump into the dream house that they see in those home magazines. That is not a good idea because the bigger the house the more problems you will be facing to maintain it. A good way to look at which home to buy is to measure the amount of room you are using now. If you are currently living in a 1,200 square foot home or apartment, this is a good gauge as to how much home to purchase. A good starter home should be between 1,200 to 1,800 square feet (Sqft), reason being that this is mainly a 3 bedroom/2.5 bathroom house that can be managed properly and the price is not as elevated. Also, a new construction can be a better choice due to the guarantees by the constructor and the innovations it comes with, as compared to an older house which has several fix-me-ups to tackle. Please consider a house that will allow you to live comfortably for a moderate price, and your family needs.
When shopping around for a mortgage, may people go in different directions to help them make a perfect buy. There are many types of methods of purchasing a home, for example: low or no down payment, 10 % down payment and 90% financing with mortgage insurance, 20 % down and 80% financing, or for those who can afford it full payment of the house ( not recommended), and finally my favorite, 20 %/ 80% financing with 2 mortgages and no down payment. Lets look at the options in detailed.
– Low/No Down Payment Purchasing- This is what most people do when buying a home, they put 10, 12, or 15% down and obtain financing for the rest. Unfortunately, most banks and mortgage companies will require you to get insurance on your mortgage due to the low down payment, causing you to have a higher monthly payment. Not the smart way to go.
-15 to 30 % down payment Loans- For those who can afford a higher down payment on your mortgage, this is a great way to ensure financing. Banks and mortgage companies like these clients, and are more inclined to lend you the money at lower rates and shorter terms, such as 20 or 15 year mortgages when you are borrowing 80% or less of the house purchase price. Recommended method.
– Full price Home purchase- This method of home buying is the quick way to home ownership but it will not give you financial help when it comes to taxes. Having a mortgage helps your credit and gives you many tax deductions at the end of the year. And with the financial market as volatile as it is now, buying a home cash can be a mistake financially, since you can lose money if the house depreciates. Not recommended.
-20/80 loans- This is my favorite method, since it allows you to purchase a home with no money down and it help rebuild credit and gives the fastest equity, while allowing you more flexibility with payments. Here you borrow 80% of the home value with one bank or Mortgage Company, and 20% from another institution. This will allow you to purchase the house with only fees and closing cost, but you do not need a lot of money to fulfill your dream of home ownership. You can always pay the smaller loan aggressively and the larger loan slowly, giving you 20% equity in a few years. Very Recommended method.
As you can see buying a home can be a big step, but if you are educated when doing it, it will favor you immensely. Finally, location, you need to find a good neighborhood when purchasing your home. Look at schools, shopping centers, churches, and neighbors. Go around your future home and meet your future neighbors, ask them questions about the house, its history, and its maintenance. Realtors can be your friends when looking for a home, just be aware of the realtor who do not give you many choices to look at. A good rule is to look at 10 to 20 houses before you make up your mind. Good house hunting, and good luck in this new venture.