Benefits Of Ownership
Home ownership provides opportunities for:
- Building equity. Over time, your monthly payments will increase
your equity (the money you have invested in your home). Equity also builds
as your home appreciates (increases in value).
- Saving on federal income taxes. You may be able to deduct mortgage
interest and property taxes from your taxable income.
- Avoiding increasing payments. With a fixed-rate mortgage, your
monthly mortgage payment stays the same until you pay your loan in full
(increases in property taxes and homeowners insurance can raise payments).
Monthly rent usually increases with inflation.
| For Federal Income Tax Information |
| Read the Internal Revenue Service’s (IRS) Publication 530
for information on homeowners’ deductions. View it online at
www.irs.gov/publications/p530/ar02.html
or call (800) 829-3676 to request a copy. |
Should We Rent?
It may be better to rent than buy if:
- You will relocate before you have owned a home long enough to
recover your closing costs.
- You cannot afford a monthly mortgage payment plus the ongoing
cost of home maintenance and repairs.
- You are separating from the military and need to save
during your transition.
- You are between jobs or have obtained a job in a new profession
and may not be able to qualify for a loan.
Know What You Can Afford
Before you begin to shop, evaluate your financial situation to determine
how much home you can afford. This will take serious financial planning
and the best time to begin is at least six months prior to buying a home.
The home you can afford depends on your current income and debt obligations.
You must be able to pay your mortgage, satisfy your current debt and still
have money left over each month for savings.
- Build a good credit reputation.
- Calculate how much you will need for a down payment. Determine how much
you already have available and begin saving as necessary.
- Determine the maximum monthly mortgage payment you can afford.
- Research current interest rates.
Seek Prequalification Or Preapproval
Before you start house-hunting it is important to know how much of the purchase
price you will be able to finance. There are two options that help you do this.
- Prequalification: The lender makes a determination on how much you would
be able to borrow based solely on the information that you have provided to them.
Typically there is no charge to do this and neither party is obligated for a mortgage
based on a prequalification.
- Preapproval: The lender examines your credit report, income, assets and debts
to preapprove your credit. The lender will provide a written confirmation that you
have been conditionally approved for a loan up to a certain loan amount. Being
preapproved strengthens your buying position, as sellers will know that a lender
has already reviewed your financial information and is likely to approve your loan.
Preapproval does not mean you are guaranteed a loan. Lenders provide a final
loan commitment only after the home passes inspection, appraises at or above its
sales price and you meet their financial requirements for the requested loan amount.
Check Your Credit
Poor or inadequate credit is one of the top reasons lenders turn down prospective
borrowers. Although some lenders have loans for individuals with credit problems,
the lowest interest rates are generally available only to those with good credit.
The Annual Credit Report Request Service is a centralized contact for individuals
to request annual credit reports. It was created by the three nationwide consumer
credit reporting agencies, Equifax, Experian and TransUnion.
In addition to your credit report, lenders also look at your credit score. Your
credit score is a three-digit numerical summary of your credit report.
Credit scores range from approximately 300 to 850. The higher your score,
the better. Most lenders consider scores above 700 good credit risks, while
scores below 620 may indicate credit problems.
To order free credit reports, call the annual credit report request
service at (877) 322-8228 or visit them online at
www.annualcreditreport.com.
Select A Lender
You can select a lender on your own, or you can use the services of a mortgage broker.
A mortgage broker:
- Acts as a liaison between you and the lender.
- Checks various loans available from multiple lenders.
- Shops for the best loan for your situation.
- Is compensated by either the buyer or the lender originating the loan.
To select a reputable lender, ask friends, family and your real estate agent
for recommendations. Consider the lender’s reputation, products and services and
ability to meet your closing date. Also consider the following.
- Closing costs. These can include an application or underwriting fee, a
processing fee, title insurance, closing or escrow fee, title search, appraisal
fee and other charges.
- Discount points. You may have the option to pay one, two or three points to
lower your loan’s interest rate. Each point paid costs 1 percent of the loan amount
and typically lowers your interest rate by approximately 0.250 percent.
- Loan origination fees. These usually equal 1 percent of the loan amount
and are paid at closing.
- A policy for locking an interest rate. You may want to “lock in” an interest
rate and points for a specific time, usually 30 to 45 days. Obtain a written
lock-in agreement.
- A policy for selling mortgage servicing. The lender who grants your home
loan may not be the one who collects payments, manages escrow funds and provides
other service-related functions. Consult the U.S. Department of Housing and Urban
Development (HUD) at
www.hud.gov/offices/hsg/sfh/res/rightsmtgesrvcr.cfm for more information.
Conduct Interviews
When you call a prospective lender, use the questions and record the information
you gather on the Lender Comparison Work Sheet.
Topics covered in this section are:
|
Selling A Home
Selling A Home
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