Monday, May 27, 2019

Buying a Home: What To Do and How To Do It

Once you are ready to buy a home, you will need to be as informed as possible. This guide discusses how much money to save for a down payment, how to work with a real estate agent, how to negotiate, and what you need to know about closing on your new home--including fees and other costs.


The Mortgage Payment

A mortgage payment consists of the mortgage loan payment (principal and interest), property taxes (in most cases), and homeowner's insurance. It might also include private mortgage insurance if your down payment is less than 20 percent.
Caution: The lender will set a maximum on how much you can borrow, but you use the maximum only as a starting point in deciding how much you will borrow.
Tip: To get an estimate of the maximum mortgage amount ask a real estate agent to help you get "pre-qualified" by a lender.
When deciding how much to borrow, be sure to take into account saving for your retirement, your financial goals, and your current lifestyle. If your monthly payments do not allow you to meet these needs, buying that particular home may not make financial sense.


The Purchase Price

Having decided how much of a monthly mortgage payment you can realistically afford, you are now ready to set a price range for your new home. Give this range to potential real estate agents during your first visit or use it to rule out homes that are out of your price range.
Planning Aid: See the Financial Calculator: How much house can I qualify for?
Tip: Don't be afraid to look at homes that are 15 to 20 percent over your price range. In many cases, you will be able to negotiate the price down.


The Down Payment

Try to make as large a down payment as possible. There are two reasons for this: (1) lenders will generally not require you to pay for private mortgage insurance if you can come up with a 20 percent down payment and (2) the sooner you pay off your mortgage, the better off you will be financially.
To save the 20 percent down payment, you may need to go on an "austerity plan" for a year or two. Many home buyers also use cash gifts or loans from family members to meet the 20 percent figure. If you cannot save 20 percent of the purchase price, you will still be able to get financing, however.

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