August 23rd, 2017 7:17 AM by Jackie A. Graves, President
Tired of paying rent
and ready to become a homeowner? Good news! According to Trulia’s recent rent vs buy report, buying a home remains a cheaper
option than renting, thanks to relatively low interest mortgage rates and
fast-rising rents. And, even better news, you’ve taken a step in the right
direction when it comes to saving money — buying can be nearly 40% cheaper than
But before you start
picking out curtains and furniture for that new home, there are some financing
decisions that need to be made. Determining what type of mortgage is best for you and your family may seem
intimidating, but there is one out there that’s right for you.
The standard 20%
down, 30-year fixed rate loan will help keep your payment low. For example, if
you plunk down 20% — or $50,000 — on a $250,000 property, your monthly payment
would be $990. Other mortgage options, while possibly helping you build equity faster, could add more than $450 to your monthly
payment on that home.
Let’s face it — not
all of us have a 20% down payment socked away in the bank. But there are mortgage options that require
less cash upfront and can help you become a homeowner.
A 10% down payment loan with private mortgage
insurance or a Federal Housing Administration (FHA) loan require less money
from the buyer upfront. But it does mean you’ll have a higher loan balance and
will be forking over more money each month. It also means you’ll have less
equity in the home when you’re ready to sell because you’ve also been paying
mortgage insurance premiums.
However, if you can
handle the higher monthly payment, but just don’t have the money saved for a
large down payment or conventional mortgage, these options could be right for
A 15-year fixed-rate
loan could help you reach that goal. With this type of mortgage you’re paying
off your loan principal faster and gaining equity in your home more quickly. On
the flip side, you’ll have a much higher monthly payment.
It’s a great way to gain equity. That is, if
your budget can handle it. The trade-off is you’ll have less cash on hand for
other expenses as they come up. (And with small children, unexpected
expenditures are almost a guarantee.)
Good for you! One of
the smartest things you can do is commit to a home that meets (and doesn’t
exceed) your needs. You can avoid monthly payments and interest altogether by
paying for your home outright. Bonus: you’re building equity as your home’s
value increases over time.
How long you stay in
a home is an important consideration when deciding to purchase a home and take
out a mortgage. As we’ve outlined before, it might be five years before you
recoup the initial costs of purchasing a home.
If you’re certain you
won’t be staying put much longer than five years, options that get you the most
equity in your home — such as a 15-year or 30-year mortgage — are good ways to
Most real estate
professionals recommend shopping around, obtaining information from several
lenders to ensure you’re getting the best price. You can also work with a
mortgage broker to find a lender. Securing a home loan can take anywhere from a few weeks to a
few months, so it pays to do your homework.
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