Buying a home can be very overwhelming and everyone from first-time home buyers to seasoned movers have questions. The questions below are some of the more common questions to let you know that you’re not alone.
There are several factors that affect the down payment. The type of loan applied for, your income, your available and your cash-on-hand. It also depends on your long-term goals for the home you are buying. It is typically recommended that you put 20% down. By doing this, you avoid paying private mortgage insurance (PMI) on the loan, which will save about $40 – $70 a month.
Most first time buyers won’t be able to put down 20%. Many loan programs offer buyers the ability to purchase a home with little or no money down. This allows you to save your cash for other expenses that are bound to come up. The other-side to putting less than 20% down is that lenders will require you to pay private mortgage insurance (PMI) which is a monthly fee a borrower pays if the loan exceeds 80 percent of the purchase price. Since a lower down payment results in a statistically higher risk to the lender, PMI insures a portion of the loan to reduce the risk to the lender. There are ways to put less than 20% down and still not have to pay PMI. You’ll want to check with your lender for these options to see if one is right for you.
This is probably the most important issue that will dictate how much cash you put down. If you have good credit and a solid income, most lenders will qualify you for a loan amount larger than you would ever want. Before speaking with a lender, take a good look at your personal finances and spending habits. Be sure to include all of your expenses, from the utilities to dinner and a movie. Then decide just how much you are willing to pay for a home each month.
It’s important to understand the benefits of mortgage interest and the real estate tax deduction. Since you will own the home, you will be able to deduct all the interest and taxes you pay on the home. Consult a tax expert on these issues, but it’s important to get an idea of how much of a tax break you will receive if you own the home. This will also help you decide your mortgage amount.
If the purchase price of your home is $200,000, are you going to miss $40,000? What is that money currently doing? Is it earning a good rate of return? Will you have to sell securities and pay capital gains taxes to liquidate that money? Be sure to investigate the true costs associated with a large down payment.
You should take into consideration any other debt you may have. For example, if you have a substantial credit card debt, it would probably be better to pay the cards off instead of putting down a large down payment. Maybe you only owe $5,000 on your automobile. It would be better to pay off the car, and put the difference toward the down payment, thereby eliminating another expense.
Have you made any additions or improvements to your house that will need to be added to the policy? If you have, inform your agent in writing and send photographs to validate the improvements.
Has the value of your house risen in the last year? If you do not have a rider that automatically raises your coverage on an annual basis, you will need to adjust your level of coverage to match the increase in property value.
The following are a number of methods that you can use to potentially lower your annual premium for your Homeowners’ Insurance. Consult your agent to see which apply and how much you can save. In addition, most will add to the safety and security of your house.
