June is
National Homeownership Month. Many Americans lost their homes during the
recession and some have not fully recovered or do not desire to become
homeowners again. When owning a home you
need to create a budget to help manage your finances and debt to make sure you
can stay in your home for as long as you like and reduce the chances of filing
for bankruptcy or foreclosure.
Before you buy
a home you need to prepare for the home buying process. Estimate your monthly
mortgage payment. Subtract the difference of the estimated monthly mortgage
payment and your current rent (if you pay rent). The first month add $100 to a savings
account. The second month add $200 to
the savings account, the third month add $300 and keep doing this until you
save the entire amount of the difference from what you currently pay for rent
and your estimated monthly mortgage payment.
This will ease
the burden of having to adjust to paying your first mortgage payment because
you will have already budgeted your money to accommodate for the mortgage
payment. Your mortgage payment should
be no more than 38% of your total monthly income. This will ensure that you do not live above
your means and hopefully have extra cash to pay for unexpected expenses and
plan for retirement. The advantages of buying a home are:
1. Build equity
2. Generate wealth
3. Access to
equity for unexpected expenses
4. Tax benefits
5. Access to
protection such as insurance and warranties
The
disadvantages of buying a home are:
1. Maintenance
costs
2. Increase in
payments due to insurance or tax increases
3. Insurance and
tax payments
4. Protection
costs for insurance and warranties
Here are 9 tips
to help prepare you for buying a home:
Step 1. Know Your Limit. The amount of
home (sale prices) you can afford depends on your income, credit rating,
current monthly expenses, down payment and the interest rate. There are many options for owning a home such as: buying a condo, townhome or single family
home.
Step 2. Know your rights. There are several government acts that protect borrowers’ rights. The Fair Housing Equal Opportunity for All act prohibits discrimination and intimidation of people in their homes, apartment buildings, condominiums and all housing transactions including rentals and sales.
The Real Estate
Settlement Procedures Act (RESPA) act relates to closing costs and settlement
procedures. The act requires consumers receive disclosures during the home
buying process and outlaws kickbacks.
Step 3: Shop for a loan. Save money by doing your homework. Talk to several lenders, compare costs and interest rates and negotiate to get the best deal possible. To show you are a serious buyer and to have a competitive edge over other buyers get pre-approved for a loan and use the pre-approval letter when shopping for a home. Shop around with several lenders and get at least 4 quotes on loans to make sure you are getting the best price and terms. Contact a loan officer or mortgage lender instead of a broker to assist you with buying a home. Ask for a list of current mortgage interest rates, if the rate is fixed or variable and the loan’s annual percentage rate (APR) which includes the interest rate as well as points on the mortgage loan and may include broker or lender fees.
Step 4. Use programs. Several
companies offer home buying programs such as Home Free and NACA as well as
state governments to assist with down payment and closing costs. Visit www.hud.gov/buying/localbuying.cfm to
find home buying programs in your state.
