IN PICTURES: Financing For First-Time Homebuyers
Down PaymentRegardless of your interest rate on a lower-priced home, you can get into a home with less money. In the example of the condo that rose from $100,000 to $120,000, your monthly payment dropped. But would the lower payment help you if you didn't have an extra $4,000 for a larger down payment? The down payment amount difference could eliminate the possibility of buying the home you want, or knocking out of the buyer's market altogether if you can't find a cheaper neighborhood.
Plus, the extra $4,000 can impact your ability to pay for unexpected home repairs, your emergency savings and ability to afford to furnish your new home.
Can Low Interest Rates and Low Prices Unite?Yes. In September 2010, interest rates and housing prices were both rather low. But how do you know what a low rate is comparatively? You can find historic mortgage rates on the Freddie Mac website. Look at the last five years for highs and lows.
Although such an opportunity was presented in the past, there is no assurance that history will repeat itself. More importantly, if you need a house soon, the option to wait an extra five years for the ideal housing market circumstances may not be a realistic alternative.
MovabilityInterest rates don't matter as much, as long as you can easily afford your payments, if you live in your home for five years or less. While it's never a guarantee that housing prices won't drop further, you can view estimated housing prices for the last 10 years by selected an address in the neighborhood you are studying online. Always compare neighborhood values instead of national or city-by-city. Home price patterns vary rapidly from neighborhood-to-neighborhood and state-to-state. The likelihood you will end up owing more than the remainder of your mortgage can be lower if you buy a home when your local real estate market is below its peak.
HOA FactorHomeowners Association (HOA) fees are often more expensive for higher-priced homes, plus they can climb higher when more homes are vacant. Why? HOAs cover shared services such as lawn maintenance, condo maintenance, clubhouses, pools, tennis courts and/or private streets. Similar to other historic data, you should contact potential HOAs and ask for historic rates over the last 10 years. You should also ask about maximum fees, or what factors determine rate hikes and decreases. Always ask about HOA fees on all homes you are considering. HOA fees may be lower on a slightly higher priced home, especially if less services are offered.
In low interest rate environments, HOA payments can present an excessive monthly burden, so make sure that these payments are factored into your monthly budget. (For more on Homeowner's Association's see 9 Things You Need To Know About Homeowners' Associations and Buying A Condo.)
RefinancingA big perk to a lower home price versus a lower interest rate is that your home can be refinanced or modified in the future. Basically, the problem with high initial interest rates can be mitigated in the future if rates decrease. If your home's interest rate isn't at a five-year interest rate low, ask potential mortgage bankers about costs to modify your loan. The range can be anywhere from free to thousands. There isn't a guarantee your home loan's interest rate will drop, but you can insure you can afford to refinance when it does.
ConclusionThe decision to buy a home should always be based on your ability to afford your monthly payment, your down payment, emergency savings, home repairs and furnishings. Always consider potential future factors such as HOA fees and the option to pay down your mortgage if you have to move quickly.
There isn't an exact right time to buy a home, but there is a time when you're financially ready and know you're going to stay put for at least five years. Buy a home that you can afford both now and five years in the future.
For further reading, checkout New Home Repair Troubleshooting, Are You Ready To Buy A House?, Buying A Home: Calculate How Much Home You Can Afford, and Will You Break Even On Your Home?.
by Reyna Gobel,MBA
No comments:
Post a Comment