Things to Consider Before Buying a Home
Buying a home is usually the largest investment that the average citizen will make in his or her life. The home contains a great deal, if not all, of the real net worth of an individual in the United States, and provides many personal benefits as well as economic benefits.
It is hardly surprising that many experts suggest that you think through the process of buying a home thoroughly, with all of the tips below being only the tip of the iceberg, but absolutely essential to know before you start talking to real estate agents and house sellers:
How Much You Can Put Down
The standard amount of money that you should have in order to purchase a home is 20%. However, in this volatile economy, there are not many people who have that kind of money. This would normally dictate that you simply wait to buy a home, but with interest rates being as low as they have ever been in history across the nation, sometimes it is good to find another way.
The new standard is 10%, but this is only if you have a guaranteed income stream or substantial savings that will allow you at least 12 months of cushion if, for any reason, you can not make the payments on time.
What Type of Payment Plan to Get
There are two main types of ways to pay for a home – a fixed rate mortgage and an adjustable rate mortgage. A fixed rate mortgage gives you a guaranteed rate of interest to pay, no matter what the action of the market may be. During times of extremely low-interest rates, this may be the best route.
However, if you want to take your chances on the market going even lower, then you can get an adjustable rate mortgage that will allow you to change your rate to the current market rate if you think it would be more advantageous for you. However, let the buyer beware, because there are some adjustable-rate mortgage packages that allow the lender to change the interest rate as well. Stay away from these mortgage packages no matter what.
How Long Will You Stay in the Home?
The prevailing notion is that you should always buy a home instead of rent. However, if you are looking to stay in the home less than five years, it may actually not be a good idea for you to buy. This is because most of the money that you will pay will be drawing down the interest on the home, and leaving the principal untouched. This means that you will gain no equity in the home, and if you sell it, you will actually make no money.