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HOME PURCHASE FAQ
What are the advantages of purchasing a home?
Buying a home gives you personal benefits such as a sense of buying a stake in your community, and pride for achieving the American dream of home ownership. However, there are some strong financial benefits as well.
One of the largest benefits of homeownership is the tax savings you receive. Interest payments on a home mortgage are 100% tax deductible (consult your tax advisor to learn more). And as you continue to pay your mortgage payment, you are building equity in your home, as opposed to a rent payment that goes into somebody else’s pocket. You build equity faster as the value of your home increases, and you can borrow against that equity to pay off debts, send your child to college, make home improvements, or take a much needed vacation. With today’s low or no down payment options, affording a home is a lot easier than you may think.
What should I know before buying a home?
Here are some tips that could save you a lot of time, money and trouble.
Plan ahead. Establish good credit and save as much as you can for the down payment and closing costs.
* Get pre-approved online before you start looking.
* Set a budget and stick to it.
* Know what you really want in a home.
* Make a reasonable offer.
* Choose your loan (and your lender) carefully.
* Consult with your lender before paying off debts.
* Keep your day job.
* Don’t shift money around.
* Don’t add to your debt.
* Timing is everything.
What criteria do lenders use when approving a loan?
Lenders look at three criteria: Capacity, Credit and Collateral.
CAPACITY – The lender will weigh your housing expenses and total debt against your monthly income to determine your ability to repay a loan. They’ll also need proof that you have the cash available for down payment and closing costs by verifying funds from sources such as bank accounts, stocks, bonds, mutual funds, sale of an existing home, or gifts from family members.
CREDIT – To determine your credit risk, the lender will look at previous mortgage payment history, rent payment history, credit card use and installment debt payment history. If you pay your bills regularly and on time, you’re demonstrating the integrity that lenders are looking for in a borrower.
COLLATERAL – When you ask for a home loan, you’re putting the home itself up for collateral, so the lender will want to know what the home is worth.
What is negative amortization?
This can occur with flexible-payment loans which allow you, at times, to choose to make a payment that is lower than the monthly interest you incur. The difference in interest is then added to your loan balance. This is called negative amortization. If the value of your home does not increase, the amount of equity you have in the home decreases. However, this type of loan allows you to qualify for more home because the initial payments are substantially lower than those associated with a fixed-rate mortgage.
What is a home mortgage?
A mortgage is loan that is obtained for the purchase of real estate. The actual term mortgage means a lien or legal claim on the home or property which is the security on the debt. All mortgages have a principal amount and an interest rate that accrues over the life of the loan.
What are the typical term lengths for home mortgages?
The typical terms for mortgages are 15 years, 30 years, and 40 years. Remember that the shorter the life of the mortgage, the lower the interest rates. Conversely, this also means a larger down payment and greater monthly payments. The most common mortgage term is 30 years.