Home Buying the Best Investment
BALANCING LIFE’S ISSUES, INC.
Objectives
Why a home is a good investment
What to consider before buying
How much house can you afford?
Your Credit Score
What type of mortgage is best for you?
Closing Costs
Points and APR
Tax advantages
Why a Good Investment?
Building “Equity”
By taking out a “Mortgage”
Historically home values have increased steadily
over the long term.
The only investment you can also live in.
What to Consider Before Buying
Down payment (5-10%)DebtStable IncomeHousematesHome MaintenanceAre you committed to living in the area long
term.
How Much House Can You Afford?
Initial costs to be considered: Down payment Closing costs Interest Rates
Ongoing expenses: Monthly mortgage payment (with escrows?) Homeowners Insurance Property Taxes Maintenance Expenses (or fees if condo) Unanticipated Expenses
Your Credit Score
Your credit score will effect your interest rate.
Know your credit history before applying for a
mortgage.
You are entitled to 3 free credit reports annually.
Be wary of for fee “Credit Monitoring Services.”
If you are applying for a joint mortgage – the lower
credit score will be the one considered for the loan.
Types of Mortgages
Fixed Rate Term = 15,20,30 year Equal installments
Pros Payments stay level overtime If interest rates go up your rate stays the same
Cons If interest rates go down, you would need to refinance to
get a lower rate
Types of Mortgages
Adjustable Rate Starts with a lower fixed rate for 1,3,5 or 7 years As interest rates go down your payments are reduced
Pros Good option for short-term ownership Benefits when rates go down
Cons Payment could increase after fixed term expires
Types of Mortgages
Balloon Mortgage Low monthly payments for
5-10 years One lump sum or “Balloon”
payment pays off all of the principal
Pros Some allow you to convert
to extend the loan
Cons If you find yourself short
when balloon is due you could lose your house
Interest- Only Low interest only payments
are made for 5-7 years Principal is paid in a lump
sum
Pros May be able to refinance
Cons If you can’t make final
principal payment you can lose home
You are not building equity
What are the advantages of “Pre-Approval”?
Paperwork
Borrower Employment
verification W-2 Statements Income tax returns for
at least 2 years Bank account
information Current debts and
credit card balances
House or Property Signed Sales Contract Survey Architects plans if new
construction Co-op and condos
require additional documentation
Do your homework Be prepared
Closing Costs
Appraisal
Attorney’s Fees
Inspections (termites,
radon, oil tank,
asbestos)
Filing fee
Mortgage Tax
Points
Real Estate Taxes
Title Insurance
Title Search
Points and APR
Points Up-front interest charges paid to the lender
Discount points Pre-paid interest
Origination points Like a commission
APR Annual Percentage Rate
When does it make sense to take points?
Tax Advantages
Mortgage Interest is Deductible
Discount Points are tax deductible (as long as not used for closing costs)
Depreciation of home
Home Buying the Best Investment
BALANCING LIFE’S ISSUES, INC