Buying a Home
It’s a good idea to figure out how much you can afford and
get pre-approved for a mortgage before you start home shopping.
One thing to consider is your down payment amount. Think you
can't buy a house without a 10% or 20% down payment? Thanks to
more lenient government guidelines and new mortgage products,
many people can now get into a house for as little as 3% down-or
less. There are even some special programs for first-time buyers
that help with closing costs.
The Benefits of Equity
Equity is the principal part of your monthly payment that you
can use as a down payment on a new home, or collateral for a
home equity loan. You can use a home equity loan to finance home
improvements, a child's college tuition, or a new car.
Real estate is also a great way to keep a hedge against
inflation. While some homes do appreciate in value more quickly
than others, real estate usually keeps pace with inflation. In
fact, homes in general have been appreciating at a steady 3% a
year. (Your REALTOR can provide you with the housing
appreciation rates in the areas in which you're interested in
buying.)
That Wonderful Thing Called A Tax Break
As a homeowner, when filing your taxes you can deduct the
interest portion of your monthly payment-and that can mean big
savings. You can deduct your property taxes, too.
So look at what your monthly mortgage payment will actually be,
taking your tax breaks into consideration. You may find out it's
about the same as-or sometimes even less-than a rent payment!
With a 5% down payment, a $100,000 30-year mortgage loan at 8%
interest (8.15% APR) requires a monthly principal and interest
payment of $733.76. Assuming a 28% tax bracket and $150 for
monthly property taxes, the after-tax monthly payment would be
about $615! (This is only an example. Please consult with a tax
advisor regarding your own tax situation and current tax laws.)
Pre-Qualification vs. Pre-Approval
Pre-qualification is just a guesstimate of how much you could
afford. But with a pre-approval, it's just that: getting your
mortgage approved prior to going out and looking for a new home.
Your loan officer will show you which items you should bring to
apply so neither of you will need to wait for various written
income, asset and liability information. So you could get a loan
decision in just days. And when you apply online , you can get
your approval quickly!