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Can You Really Afford to Buy a Home?

We think knowledge is power and when equipped with all the right information, a person can find out just what he or she can achieve.

With spring in the air, now is the time people are thinking of buying or selling a home. Because Federal interest rates are still low, now is a great time to buy or refinance. Lower interest rates mean you can get more house for your money. If you already own your home, refinancing for a lower interest rate (or a shorter term) can save you money in the long run! If you are looking to purchase a new home, here are some great tips to get you started!

Pre-approval

Most realtors require a pre-approval letter from a mortgage lender before they will show a home. They do this for a couple of reasons. First, realtors only get paid at the closing, so showing you a home that is out of your price range is not the best use of anyone’s time. Second, is for the safety of the realtor. Knowing that the client has sat down with a loan officer and the lender has all the client’s pertinent information puts the realtor at ease.

Down payment

A down payment is the percent of the purchase price that the buyer puts towards the loan. Lenders and mortgage loan programs all have different requirements when it comes to how much of a down payment is needed. A down payment is a way of showing good faith that you are invested in the purchase. Down payments can also affect the interest rate.

Private Mortgage Insurance (PMI)

Insurance that protects the bank should you default on your loan. PMI is usually required when the borrower doesn’t put 20% down of the purchase price. If you do end up having to pay for Private Mortgage Insurance, ask your lender what their policy is to drop the PMI at a later date. However, with some mortgage programs the only option to remove the PMI is refinancing.

Credit

Credit score requirements can vary by lender. However, the one common thing with credit scores is how it correlates to interest rates. The higher the credit score the lower the interest rate can be. A low-interest rate can save you thousands over the life of your loan.

Location

Part of a mortgage payment is escrowing your taxes and insurance. Depending on where the property is located will depend on the taxes you will pay. Putting the taxes into escrow can be a large portion of the monthly payment. Keep in mind, if you want to live in a certain area, and the taxes are high, you can try looking into surrounding towns. You may find one with a lower tax rate, which will help keep your monthly payment lower. Insurance is also part of your monthly payment, however, the insurance will be about the same regardless of where the house is located.

Rate Shopping

Shopping lenders for the best rate is important. The lower the interest rate the better. A low-interest rate means a lower payment, as well as less interest paid over the life of the loan. A half of a percent on a $100,000 mortgage with 10% down may only mean a $25 a monthly payment difference but a $10,000.00 difference in the interest over the life of the loan.

Price range

When thinking about purchasing a new home instead of thinking about the purchase price, think about the monthly payment that you would be comfortable making, including your escrows. That will give you a better idea of how much you can afford. Once you have a monthly payment in mind, then you can look for homes within that price range.

First-time homebuyers’ programs: There are loan programs that cater to first-time homebuyers, as well as classes that the home buyer can take to get cash towards closing cost. Work with your trusted mortgage loan officer to see what would work best for you!

Buying your first home is a huge commitment so before buying think of your long-term plans. Do you plan on staying at your current job, having kids, or getting married? These decisions may make you rethink the different homes on the market. Also, keep in mind that gaining equity on your home takes between 5 to 7 years and if you don’t plan on staying for at least that long, you should keep searching until you find your perfect location—one you will happily live years enjoying. Similarly, be thinking about how many bedrooms and bathrooms you would ideally need/want, or the style and age of the home. Older homes are full of character; however, they also could require more maintenance.

If you’re in the market to purchase a new home, contact one of our knowledgeable mortgage loan officers!  Additionally, be sure to set up an appointment with Carrielyn Reynolds to ensure your budget will support a new home. She can go over your budget and set up a new home budget for you. Carrielyn can be reached at Creynolds@newdimensionsfcu.com or (207) 872-2771.