If you have made the decision after reading "First time Buyer's Dilemma: Rent or Buy - Part 1" that you may be in the market for wanting to buy a home, the next factor to consider is your own financial situation.
Ideally, this should be investigated and a plan should be devised before you start looking at homes. This is because it can be exciting to view a home and imagine it as your own but without the finances in place, it could spell heartache.
You could miss the opportunity to buy the house as it may take too long to secure financing and the seller will get impatient. Even your realtor cannot always prolong the early stages of the sale for long enough. Also, if you are in a rush there is more chance that you will not choose your terms so wisely.
One factor that is a deterrent with financing is bad debt. If you suspect you have a bad credit rating from unpaid or late-paid bills, you will need to take care of this first. Save up and pay off your bills, get a copy of your 'clear' credit rating and take it to your local bank.
Ask the bank to give you a 'secured' credit card. This means you deposit say $500 in an account and you cannot spend it; it is security for receiving their credit card. After approximately one year of using the card and paying it regularly each month, your credit risk will be considered viable (and you can probably spend your $500!).
Assuming you have an average credit rating and steady employment, you can pursue financing by becoming 'pre-approved'. These are the magic words to a seller when you are viewing a house, as it means that you already have financing in place.
An experienced real estate agent can tell you what you need to know a bout how much monthly repayment is suitable and affordable to you. You also need to know how much this type of repayment will represent in terms of the dollar amount of the loan you can get.
The down payment is another important factor, as the more that you deposit on a home, the lower the amount that you are borrowing which means that the less interest you pay back on the loan and the lower the repayment you have to find every month.
The monthly costs of your mortgage repayment and your annual house taxes will be added to your usual monthly living expenses of food, power bills, vehicle expenses etc and these combined calculations will determine the affordable price of the property that you will be looking for.
Financial institutions usually require a minimum of five per cent down but it can be higher. Another factor that will affect your repayments is the type of mortgage you choose. Often the mortgage with the lower interest rate is more tempting, but this could be a variable rate mortgage, which means it usually fluctuates up and down with the prime rate.
This type of deal has caught many people short recently, and demonstrates the advantage of securing a 'fixed rate' mortgage. Sometimes a fixed rate mortgage is also called a flat rate mortgage or a locked-in mortgage; this is the safest type of mortgage to secure when you are budgeting your income.
Basically, all these terms mean that the interest rate will stay exactly the same for the number of years for which your mortgage is fixed (usually three or five years).
This three or five years is called the term and is nothing to do with the amortization rate (usually between 20 and 40 years). So if you borrow mortgage money over a 25 year amortization period and sign up for a three year term with a fixed rate (or locked in rate) this will mean that your monthly repayment will remain the same for three years.
No nasty surprises there!
The fixed rate mortgage will mean that you can budget to afford the fixed amount of the monthly mortgage expenses, which is good, but you will still need savings for the legal fees, the moving fees and any repairs that are urgent. (Sometimes the only way to afford the first realty investment is by buying a home that needs some tender loving care.)
A local real estate agent can direct you to professional experts in the local area. He/she has dealt with notaries, mortgage brokers, lawyers and surveyors in your chosen area and will know who is thorough and speedy etc. Sometimes it is worth asking for a quote to compare prices. For instance, you can ask lawyers and notaries the total conveyance fee for buying a home to the value of 'X' amount of dollars (fees are calculated according to the house price).
Sometimes there are grants offered by the Government to offer specific incentives for new home owners. For instance certain energy-saving 'green' practices will often qualify for a Government refund: i.e. grants are offered in some areas to home-owners who buy a new energy wood stove or an Energy Star appliance.
Most mortgage companies will accept a lump sum payment once a year. This means that you can save up and lower your loan amount once a year (usually on the anniversary of the start date of the mortgage). This will mean that you will be paying back less interest and shortening the number of years that it will take to pay off your mortgage loan.
It also means that you are accruing more equity in your own home, ready for when you may want to sell up and buy a slightly larger property. With a hot tub!
Article Source: http://www.orbitaloc.com/
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Article Title: First Time Buyer's Dilemma: Buy or Rent - Part 2
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