When planning to purchase a home the price of the residence is not the only thing to consider. Do you have enough in savings to cover the expenses involved in a purchase? Do you want to live in a single-family dwelling or do you prefer apartment living? Do you prefer an urban or rural environment or something in between?
What are the advantages and liabilities of owning your own home? Will you take responsibility for maintenance and lawn care or will you hire professionals to do so? Consider the tax advantages of homeownership. Tax Crisis Institute is prepared to help with that aspect of purchasing a home.
How Much Cash Do I Need Up Front?
If you have substantial debt you probably want to focus on reducing your debt before buying a house. The minimum you want to have going in is a10% down payment. You can substantially reduce your monthly payment and overall interest if you can go in with 20% of the total price of the property.. While there are government programs (VA/FHA/USDA) allowing you to purchase with much less down, remember you will pay interest on everything you borrow.
In addition, there are closing costs including appraisal fees, home inspection fees, insurance, and property taxes. There are also moving expenses to consider, utility deposits.
How Do I Calculate How Much to Spend?
While it sounds simple, the first step in calculating how much to spend is to determine how much you can afford to spend. Begin by adding up your total monthly household income being sure to include all sources. Next list all your regular monthly household expenses and budgeted items such as savings, recreation, and charitable donations.
Consider that your mortgage/housing budget should not usually exceed 25% of what you take home each month. You do not want to become house-poor. With all this in mind, calculate what you can afford to put out each month. To help with that you can find mortgage calculators online. Decide what you can afford monthly, then determine how much you can afford to spend on a dwelling. You may want to investigate different areas to find what you want at the price you are willing to pay.
What Other Expenses Will I Incur Through Home Ownership?
Depending on where you buy, you will probably have HOA fees. There will be homeowner’s insurance, personal property taxes, home maintenance. Taxes and insurance can be included in your payment and spread out over twelve months instead of being put out in one lump sum each year. These expenses will be added to your monthly loan repayment amount.
What Are the Advantages of Home Ownership?
There are substantial advantages to home-ownership:
- While you are making a monthly mortgage payment, that money reduces your loan liability providing you with equity in your home.
- It does not increase the landlord’s wealth. It becomes your wealth.
- Should you stay in the home until the mortgage is paid in full, you will no longer have a monthly expense for a place to live.
- You can borrow against the equity in your home for unexpected large expenses.
- The interest on your mortgage (and equity loan) is deductible if you itemize when filing taxes.
- Generally, your property taxes are also deductible if you itemize when filing.
You should confer with a tax specialist to get the greatest benefit from the tax advantages of homeownership. Tax Crisis Institute has the professionals and resources to assist you with this.
What Are the Liabilities of Home Ownership?
There are liabilities associated with homeownership:
- Property taxes are your responsibility.
- Home maintenance is also your responsibility.
- If you live in a single-family dwelling, unless your HOA takes care of lawns, that will also be your responsibility.
- If you are considering a development with an HOA, you should check into its requirements of the homeowner and guidelines for an individual property.
What Type of Mortgage Should I Seek?
Before you seek your mortgage type and lender, it would be helpful to know your credit score and your Debt To Income (DTI) ratio. Many credit card companies now provide your fico score online or on your monthly statement. Your score is also available through one of the reporting companies such as Equifax or Experian. You can find online instructions for computing your DTI.
Mortgage types include:
- Conventional mortgages are not government-backed and often require up to a 20% down payment. You may be required to purchase PMI (personal mortgage insurance) to protect the lender. Overall costs can be less than other types of loans. However, they require a higher DTI.
- Government-backed loans which require much less to no down payment. These include FHA (Federal Housing Authority), USDA (US Department of Agriculture), and VA (Veterans affairs.
- Fixed-rate mortgages mean that your principal and interest payment will remain the same for the life of the loan making budgeting easier. However, you may pay more interest on a longer-term loan.
- With adjustable-rate loans, your interest fluctuates with the market making your payment including interest unpredictable over the duration of the loan. You can pay less in the beginning than you would with a fixed-rate loan.
- Find a realtor that is a good fit for you and will be proactive about helping you find the home for you. Your realtor should be able to direct you in the process of procuring loan preapproval as you move toward your purchase. Work with your realtor to determine what type of loan is best for you. Find a lender that will work with you as you seek your preferred home.
Are Prequalified and Preapproved the Same?
Simply said–No. Being prequalified is not confirmed approval for a loan. It is simply a less detailed process resulting in a less certain offer. Getting preapproved means you have completed the approval process and received a letter from the lender stating you are preapproved for a loan up to a certain amount. The letter is included with your purchase offer. The seller knows the process will proceed much more quickly with a preapproved buyer. Call today for more information.
Tax Crisis Institute has been a tax relief leader for over 30 years. When you work with the Tax Crisis Institute, we’ll make sure you don’t pay anything more than you owe!
Call Tax Crisis Institute today for a FREE consultation!