Information for Buyers
On this page: Benefits of Home Ownership - Your Mortgage - Top Home Buying Tips
The Benefits of Home Ownership
- Freedom! The home is yours. You can decorate any way you want. Want to change the carpet? Add built-ins? Drill holes in the walls for photos? You can, and many of those changes can add value to your investment. You will be able to benefit from your investment as long as you own the home.
- Tax advantages. Mortgage interest and property taxes are deductible from your federal and state income taxes.
- Savings plan. As your property increases in value your equity and net work increase.
- Equity. Money paid for rent is money you'll never see again. Mortgage payments let you build ownership interest in your home.
- Stability. Remaining in one neighborhood for several years and being an owner in that neighborhood helps establish lasting friendships, allows you to participate in community activities, and offers your children the benefit of educational continuity.
Mortgages
The modern mortgage market offers a variety of mortgage loans catering to the needs of homebuyers. The titles and details of these plans can become confusing, especially as new types are introduced continuously. You can make sense of these types of loans, however, if you understand the basic principles that govern all mortgage loans. Again, you can look to your Real Estate Professional for assistance.
Basic Principles of all Mortgage Loans
- The home is used as a security to back up the loan. A lender can force sale of a home if the borrower defaults by failing to make scheduled payments.
- The larger the loan compared to the value of the home, the more risky for the lender and, often, the more expensive the loan will be.
- Interest earned by the lender always is equal to the periodic interest rate times the outstanding principle balance of the loan. The periodic interest rate is the annual interest rate divided by the number of payments in the year (usually one per month).
- The required payment is usually a bit larger than the interest due so that some of the principle balance is repaid with each payment. This process is called amortization and is why most mortgage loans can be retired when all the monthly payments have been made.
All mortgage loans have one of the following features:
- Fixed payment and fixed interest rate - fixed rate mortgages
- Fixed rate, but variable payment - graduated payment mortgages
- Variable rate and variable payment - adjustable rate mortgages
As you learn more about the types of financing available, you will notice that some loans appear to have more favorable terms. That may indicate that those loans are, indeed, bargains (and it does pay to shop around), but usually it means that those loans could have some feature that is less appealing to borrowers. For example, shorter term loans often have slightly lower interest rates compared to longer term loans. However, the monthly payment for the same amount of principle may be higher because of the shorter term. Variable rate loans usually have much lower interest rates to compensate for the risk the borrower accepts that the interest rates will rise in the future.
Top Home Buying Tips
Tip #1: Research is the Key to Discovery
Home sellers won't call you with an offer to buy a maintenance-free home with a wonderful mortgage; You have to find the gems yourself! Only by reading available materials, talking to friends and experts, and spending time looking at different homes, schools, and neighborhoods will you end up with your American dream. Avoid the nightmares by learning how best to buy and maintain a home.
Tip #2: Develop a Mortgage Shopping Cart
One of the biggest decisions to make before putting a contract on a home is how to finance the purchase. There are 10,000 lenders competing for your mortgage business. Today, you can apply for a loan over the Internet or even use a mortgage broker to shop for your loan with hundreds of lenders. When choosing a lender, you want to avoid apples to oranges contrasts by comparing fixed rates to fixed rates, not fixed to ARM's. Create a chart that lists different types of loans, fees, and at least five mortgage providers (including a mortgage broker).
Tip #3: Make A Plan and Get Pre-Qualified
Every important decision needs to be clearly thought out. Developing a home buying plan can help you focus on the important factors and organize the entire process. You may even want to use a binder with sections on house hunting, home financing, service providers, etc. Pre-qualifying for a loan helps you determine the home price you can afford and presents you as a genuine prospect to the seller. A lender typically uses the 28% formula (your monthly mortgage can't exceed 28% of your monthly income) in approving your loan. Planning your actions and getting pre-qualified will keep you out of panic mode and allow you to take advantage of opportunities. A thorough plan will save both time and money.
Tip #4: Value, Value, Value
The days of 10-30% annual appreciation have passed. Homebuyers in the 1970's benefited tremendously from what seems like appreciating home prices. Nowadays, you're looking at slow growth while guarding against the possibilities of falling prices, skyrocketing ARM rates and corporate layoffs that can dramatically affect your home values. The classic rule of buying the worst house in the best neighborhood still applies. If you buy with an eye towards improvement, you can customize the home to fit your needs. The saying, "make money buying a home, not selling one," should keep you focused on the long-term importance of the purchasing price.
Tip #5: Create a Top 10 List of Amenities
When shopping for a home, list the features (fireplace, fenced-in yard, new appliances, etc.) that are most important to you in deciding on which home to buy. Establishing "your criteria" early on will save time shopping for inappropriate homes and may keep you from buying a home on a whim. As detailed above some of your top 10 amenities should logically be sacrificed if incredible value is available.
Tip #6: Put Yourself in the Seller's Shoes
You are about to make one of the most important decisions that will affect both your life and the life of the seller. If you take time to understand the reasons the seller bought the home, their reasons for selling, and the home improvements they have made or not made, you'll be in a better position to evaluate the home and negotiate a better deal. In the end, the home buying process comes down to decisions made by the individuals buying and selling the home. A closer look at the seller may help you in deciding whether and for how much to buy a particular home.
Tip #7: Get a Quality Home Inspection
Although it is hard to believe, more people pay for inspections before buying used cars than when making the biggest investment of their lives - their homes. Paying for a qualified home inspection before you buy a home isn't just spending " a little extra" for peace of mind; it's absolutely essential for anyone who doesn't want to spend thousands of dollars for repairs.
Tip #8: Achieve Peace of Mind: Home Protection Plans
To protect both you as a buyer, as well as the seller, it is a good idea to purchase a home protection plan. What exactly is a home protection plan? A home warranty, or home protection plan, is a service contract, normally for one year, which protects homeowners against that cost of unexpected repairs or replacement of their major systems and appliances that break down due to normal wear and tear. A negotiable contract between the buyers and sellers which does not overlap or replace homeowner's insurance policy, this type of warranty can save the new homeowner lots of headaches, as well as put seller's fears to rest. The warranty covers mechanical breakdowns, while insurance typically repairs the related damage. For example: if a hot water heater burst and destroyed a wall in your home, the warranty would repair the water heater and your insurance would pay to fix the wall.
