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Home buying Loans

young family moving into their houseHowever, buying a home isn’t for everyone at every stage of life. Don’t get me wrong. It can be an excellent option and a better investment over the long term than paying rent. You just have to make sure you’re ready.

This post will give you an idea of a few of the factors to consider if it’s the right time for you to buy.

Are You Saving Enough?

The first thing you need to think about is whether you have enough savings to buy. It can be helpful to break this into two categories: saving for the house and saving for everything else that comes up.

Saving for the House

When you’re getting ready to buy, there are a variety of things you have to consider in determining how much you might be able to afford beyond the monthly payment.

To start with, let’s consider the down payment. There are a number of loan programs available that aim to make homeownership more affordable by lowering the required down payment to significantly decrease the upfront investment barriers. You can generally get a home with a down payment of as little as 3% – 3.5%. Quicken Loans even offers a 1% down payment option for well-qualified buyers.*

If you’re active-duty military, a veteran or a surviving spouse, it should be noted that no down payment is required for a VA loan.

There are also some good reasons you might consider making a higher down payment. Down payments that are more substantial signal to lenders and investors in your mortgage that you’re a less risky client because they’re not funding as much of the transaction. This could mean you get a lower interest rate. Also, higher down payments will get you lower mortgage insurance rates if they don’t help you avoid mortgage insurance altogether.

Another way to lower your interest rate is to prepay interest upfront in the form of mortgage discount points. By buying mortgage discount points, you buy down the interest rate. One point is equal to 1% of the loan amount and you can get your points in increments down to 0.125.

To determine if buying points is right for you, it helps to do a little back-of-the-napkin math. Let’s say you’re buying a $100, 000 house and the loan officer tells you that buying two points will save you $50 per month in payments.

On this loan amount, two points would cost you $2, 000 at closing. You simply divide $2, 000 by $50 in order to get your breakeven point of 40 months. If you can afford it and plan on staying in the house for at least a little over three years, you can end up saving money on the deal. Otherwise, it may not make sense.

While we’re on closing costs, other things you have to pay for include title insurance, prepaid escrow (taxes and home insurance) and perhaps an origination fee to pay for the loan set up.

You may also pay for the appraisal at close, although some lenders, like Quicken Loans, will cover most or all of your appraisal fee.

Outside of the closing, there are just a couple of other things to consider. You’ll have to set aside an earnest money deposit when you sign the purchase agreement for the house. This is a small percentage of the sale price of the house that shows the seller you’re serious about the transaction. You also pay for a home inspection separately if you want one.

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I agree with Michael Cheng. If you have a great credit score, stable, verifiable income, verifiable cash on hand or assets, you are a dream client. By comparison shopping, you will be able to obtain a Loan Estimate from at least three different types of lenders: Talk with the mortgage department of where you currently bank. You already have a banking relationship with them. This is a good place to start. Next, apply with a local, licensed non-bank mortgage lender. Somebody located in the town in which you live.  Last, apply with a local mortgage broker.

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