Financing a Home Purchase

Each year thousands of people find and purchase a new home.

However, if you have never gone through the entire process you may find it overwhelming. In fact, not understanding the process and your rights during the entire exchange could cost you money, both up front and down the road. Taking the time to understand how much you can actually afford to spend on a home is one of the primary considerations you should have. Next, you should learn all of the basics when it comes to mortgages. What is a good one? How do mortgages work?

If you are a first time homebuyer, then there are special programs designed to walk you through this process of purchasing a home. There are special loans you can qualify for, but that does not mean there is never room for negotiation. Learning how to discuss terms, and knowing what areas have room for compromise and negotiation in the purchase price can help you learn how to be a savvy buyer. If this is not the first time you are buying a home, but rather you are looking to purchase a home as additional income, you may want to consider purchasing HUD homes, or those homes that have been repossessed by the government and placed for resale. Regardless of your reason for wanting to buy a new home, learning how to finance and pay for it intelligently is the best way to get the most out of your investment.

How much house can you afford?

Before you even begin looking for a home, you should crunch the numbers to see how much you can afford to pay for a home.

A widely accepted rule is that you should never spend more than 30 percent of your income per year on housing. Before you start doing the math consider you must also figure in the cost of home owners insurance, property taxes and any home owners association fees you may have to pay. Figure at least one percent of the purchase price, per year, will go for maintaining the property. So, on a house that costs you $100,000 you will pay close to $83 per month to maintain it. One of the biggest mistakes new homebuyers make is taking the largest mortgage amount offered to them. Staying well under what the bank qualifies you for can save you a lot of headaches down the road. Once you have a good idea of what you can afford to pay each month will help you narrow down the price range for your new home.

Understand How Mortgages Work

Mortgages are loans that are offered by various lending institutions so you can purchase a home. The lending institution will charge you interest for lending you the money, which is figured into your monthly payments. Mortgages come in several varieties including fixed rate mortgages and adjustable rate mortgages. Both have their advantages and disadvantages. The difference between the two is that the adjustable rate mortgage has an interest rate that will fluctuate with the market, while the fixed rate locks in the interest rate at the time of the purchase.

First-Time Homebuyers Programs

While first-time homebuyers programs are mostly for those buying homes for the very first time, there are exceptions. For example, if you have not owned a home in the last three years you can qualify as a first time homebuyer. If the only home you have ever owned is a mobile home or a similar type of structure, then you qualify as a first-time homebuyer. Likewise, if you are a single parent and the only time you owned property was while married, then you are eligible. First-time homebuyer programs, such as FHA offer loans tailored to make it easier for new buyers to qualify for a loan. There are many different loans offered to first-time buyers, including VA loans for the military, USDA for those purchasing in a rural area, or Freddie Mac for those in lower income brackets.

Buying a HUD Home

HUD (Housing and Urban Development) homes are homes that have been foreclosed on by the government as a result of a defaulted FHA loan. HUD homes are available to anyone who has the money to purchase them, but preference is given to those who will be using the home as a primary residence. Many times these types of homes can be purchased below market price, which makes them a good investment property for house flippers. However, many HUD homes may not be in top condition and these homes are sold as-is, meaning that the home may need mild to extensive repairs and renovation. Make sure to have a home inspection prior to bidding the property. If you work with a real estate agent to purchase the HUD home, he or she can also offer assistance in making sure the property is sound. Many areas offer discounts on HUD homes to various groups such as firefighters and teachers.

Negotiate Your Best Price

Many items are negotiable when it comes to arriving at the final price of the home. This is where you will have to exercise some patience as the back-and-forth nature of negotiation of home pricing can take time. Some of the areas that present themselves best for negotiation are in the areas of carpet or roof allowances. These are replacement amounts that are removed from the overall sale price and will be used by the new owner to replace outdated carpet or replace an older roof. These allowances can include a range of structures, so it is worth speaking with the seller and your real estate agent about these. You can also negotiate other aspects other than price, especially if you learn there are other buyers interested in the same property. You can elect to place a larger earnest money deposit down or guarantee a closing date. If you have a seller who needs to sell the house quickly, having a firm closing date can be attractive. Also do some research to find out how long the property has been on the market. Often, if the house has been on the market for more than a few months the seller is willing to accept all offers, and may be motivated to consider a lower price.

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