The Finances Involved In Buying A Home
When buying your dream home, it is important to know what you are getting into. This is especially true when it comes to the financial aspects of buying a home. Understanding the finances can help you to make a sound buying decision, and it can prevent unexpected frustrations from popping up during the buying and closing process. Follow along to learn more.
The first thing that you should understand about buying a home is the amount you will be expected to put down. While there are one hundred percent financing loans out there, most require at least a small down payment. That typically amounts to at least five or ten percent of the purchase price. With these loans, you will likely be required to pay PMI, or Private Mortgage Insurance, on a monthly basis. To avoid PMI, it is almost always necessary to come to the table with a down payment equally twenty percent of your purchase price.
In addition to considering your down payment, it is important to understand how your lender determines your interest rate. To a certain extent, interest rates are dictated by the current conditions the real estate market is facing. When real estate sales are down, interest rates are typically lower, giving buyers incentives to buy. When the real estate market is favorable, the interest rates are often higher. This is out of your control. What is in your control when it comes to interest rates is your personal credit situation. As a rule, the higher your credit score, the better the interest rate will be that you are offered. Work to get and keep your credit score high by paying bills on time, reducing your debt to income ratio and using any revolving credit wisely. Do this before you buy in order to give yourself the best chance of achieving a credit score that is favorable for a lower interest rate.
In addition to understanding interest rates, it is important to understand the various loan programs that might be available to you. For instance, there are mortgages available only to first time home buyers that are backed by the government and sometimes offer more favorable terms. There are also mortgages only available to military veterans and their families. These often do not have the strict down payment requirements of other loans, making them a good option if you are short on time. There are also traditional mortgages with both secured interest rates and flexible interest rates that will change with time. Take the time to discuss all of your options with a mortgage professional in order to find the one that works best with your personal situation and the current economy.
Financing a new home can be a complicated process, as there is much to understand when it comes to making such a large financial decision. Take the time to review the points in this article, and discuss them with your lending professional. By doing so, you will feel better prepared to shop for your new home.
