WHY SHOULD I BUY INSTEAD OF RENT?
A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes (consult your tax advisor), and usually from your state taxes. This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes (consult your tax advisor) you pay as a homeowner. In addition, the value of your home may go up over the years. Finally, you’ll enjoy having something that’s all yours – a home where your own personal style will tell the world who you are.
SO WHAT WILL MY MORTGAGE COVER?
Most mortgage loans have four parts: principal (the repayment of the amount you actually borrowed); interest (the cost of the money you borrowed in payment to the lender); homeowners insurance (a monthly amount to insure the property against loss from fire, smoke, theft, and other hazards required by most lenders and the government); and property taxes (the annual city/county taxes assessed on your property, divided by the number of mortgage payments you make in a year); and mortgage insurance without 20% down payment.
Most loans are for 30 years, although 15 and 20 year loans are available, too. During the life of the loan, you’ll pay far more in interest than you will in principal – sometimes two or three times more! Because of the way loans are structured, in the first years you’ll be paying mostly interest in your monthly payments. In the final years, you’ll be paying mostly principal. If you can, pay extra in the early years on your loan amount – you’ll be paying down the principal and can save tons of money over the life of your loan!
SHOULD I USE A REAL ESTATE BROKER? HOW DO I FIND ONE?
Using a real estate broker/agent is a very good idea. All the details involved in home buying, particularly the financial ones, can be mind-boggling. A good real estate professional can guide you through the entire process and make the experience much easier. A realtor will be well-acquainted with all the important things you’ll want to know about a neighborhood you may be considering…the quality of schools, the number of children in the area, the safety of the neighborhood, traffic volume, and more. He or she will help you figure the price range you can afford and search the classified ads and multiple listing services for homes you’ll want to see. With immediate access to homes as soon as they’re put on the market, the broker can save you hours of wasted driving-around time. When it’s time to make an offer on a home, the realtor can point out ways to structure your deal to save you money. He or she may be able to explain the advantages and disadvantages of different types of mortgages -- your Personal Banker at Security State will definitely be able to explain these differences! The realtor can guide you through the paperwork, and be there to hold your hand and answer last-minute questions when you sign the final papers at closing.
IN ADDITION TO MORTGAGE PAYMENT, WHAT OTHER COSTS DO I NEED TO CONSIDER?
Well, of course you’ll have your monthly utilities. If your utilities have been covered by your rent, this may be new for you. Your real estate broker will be able to help you get information from the seller on how much utilities normally cost. In addition, you will have property taxes, and mortgage insurance unless you put 20% down on your home. Taxes and insurance are normally rolled into your mortgage payment. Again, your realtor will be able to help you anticipate these costs.
HOW MUCH MONEY WILL I HAVE TO COME UP WITH TO BUY A HOME?
That depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover three costs: earnest money (the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house; the down payment (a percentage of the cost of the home that you must pay when you go to settlement – this ranges from 3.5-5% minimum up to 20%); and closing costs (the costs associated with processing the paperwork to buy a house – often this can be rolled into your mortgage – with seller concessions).
When you make an offer on a home, your realtor will put your earnest money into an escrow account. If the offer is accepted, your earnest money will be applied to the down payment and closing costs. If your offer is not accepted, your money will be returned to you. The amount of your earnest money varies. The more money you can put into your down payment, the lower your mortgage payments will be. Some types of loan can be as much as 10-20% of the purchase price for a down payment.
Closing costs – which you will pay at settlement when you sign the final purchase paperwork – averages about 3-4% of the price of your home. These costs cover various fees your lender charges and other processing expenses. When you apply for your loan, your Personal Banker will give you an estimate of the closing costs and explain them to you – so you won’t be caught by surprise.
HOW DO I KNOW IF I CAN GET A LOAN?
Use our simple mortgage calculators to see how much mortgage you could afford to pay – that’s a good start! If the amount you can afford is significantly less than the cost of homes that interest you, then you might want to wait awhile longer. But before you give up, why don’t you contact one of our Personal Bankers to evaluate your loan potential. They’ll do this with a pre-qualification so you’ll know exactly how much you can afford to spend, and it will speed the process once you do find the home of your dreams!
ARE THERE SPECIAL HOMEOWNERSHIP GRANTS OR PROGRAMS FOR SINGLE PARENTS?
There is help available. Start by becoming familiar with the homebuying process and pick a good real estate broker. Although as a single parent you won’t have the benefit of two incomes on which to qualify for a loan, consider getting pre-approved, so that when you find a house you like in your price range you won’t have the delay of trying to get qualified. Contact one of the HUD-funded housing counseling agencies in your area to talk through other options for help that might be available to you. Also, contact your local government to see if there are any local homebuying programs that could help you. Look in the “blue pages” of your phone directory for your local office of housing and community. Another option is Habitat for Humanity (link) if you’re willing to help in the building process.