Why You Should Buy A Home
Mortgage Terms and Examples
Down Payment:
Definition: The initial payment made when purchasing a home, typically expressed as a percentage of the total purchase price.
Example: If a home costs $200,000 and the down payment is 10%, the buyer would need to prepare to pay $20,000 as a part of funds to bring to the closing.
Interest Rate:
Definition: The annual cost of borrowing money, expressed as a percentage of the loan amount.
Example: A 4% interest rate on a $150,000 mortgage means the borrower pays $6,000 in interest annually, subject to loan & rate terms, see lender for specific details.
Principal:
Definition: The original amount of money borrowed for a mortgage, excluding interest.
Example: If you take out a $200,000 mortgage, the principal amount is $200,000.
Amortization:
Definition: The process of paying off a loan over a set period through regular payments, which include both principal and interest.
Example: A 30-year mortgage with monthly payments is an example of amortization.
Term:
Definition: The length of time over which the mortgage loan is repaid.
Example: A 15-year mortgage has a shorter term compared to a 30-year mortgage.
Closing Costs:
Definition: Fees and expenses incurred during the home buying process, including appraisal fees, title insurance, and attorney fees.
Example: Closing costs might total 2% to 5% of the home's purchase price, amounting to several thousand dollars.
Escrow:
Definition: An account held by a third party where funds are held until all conditions of a contract are met.
Example: Property taxes and homeowners insurance payments are often included in the monthly mortgage payment and held in escrow until they're due.
Preapproval:
Definition: A preliminary determination by a lender of the amount a borrower can afford to borrow.
Example: Being preapproved for a $250,000 mortgage means the lender has reviewed your financial information and is willing to lend you up to that amount.
What is a mortgage rate?
In 2023, we learned about mortgage rate drops, but what does this mean? Mortgage rates represent the interest percentage on a home loan, determined by the lender based on one's credit history and financial situation. Individuals can opt for a variable rate, subject to fluctuations, or a fixed rate, ensuring a consistent rate throughout the mortgage's duration.
Because of recent rate drops this can mean the interest rate will affect the interest rate in which you pay back the loan. During the COVID pandemic, the rate was at it’s low at 2.6% however recently the rate has been at 6.6%-7.5% depending on if its a 15- or 30-year fixed rate.
What does this mean about the “right” time to buy?
This means buy what you can afford, when you can afford it. Have you ever heard the term, “date the rate, marry the house?” this means, you may be looking to purchase a home when rates are higher, but in a market with higher rates, there is usually also less competition, so use that leverage to negotiate terms on your home purchase, like seller credits towards closing costs, or towards buying down your rate, or even negotiate lowering home price, dependent on a particular listing! All of these negotiation tactics are less available in low rate markets, where more buyers have a higher buying power, and usually cause the price of homes to escalate, at times even above market value when the competition gets fierce, this is similar to the trends we experienced in early 2020, when the rates were historically low.
When you purchase in a tougher market, the deals can be found on the front end, and if/when the market shifts, and rates lower, you can apply for a refinance on a lower rate, and keep your previously negotiated deal, while likely lowering your mortgage when the market allows it. And hey! If rates just continue to escalate, you’ll still be happy you bought, because now you still have a lower rate compared to the increase in market rates.
Impact on Affordability
A decrease in mortgage rates can also affect the affordability on your home. Lower rates can reduce your monthly mortgage payments, making homeownership more accessible. With more accessibility also means the market can become overcrowded.
For the Younger Audience
Whether you’re in your 20s looking to buy a home now or interested in learning more and being ready when the time comes then saving now will be your best friend.
Start saving now! Plan how much you need to be saving in order to reach your end goal, this can be put towards your down payment, closing costs, or home repairs. Determine how much is 3% down payment for a home, that may be all you need in order to start your home buying process.
Get pre-approved. You’ll need to assess your financial health. Getting preapproved for a mortgage will not only streamline your home search but also give you a clear understanding of what you can afford.
What is your budget. Once you get pre-approved for a home, the bank/lender will be able to determine how much you qualify for a home and what range you are able to afford depending on your income tax, credit reports. An effective budget will also identify where you might be overspending, and can reflect on where you need to cut back on.
Get informed. Do your own research, network, or reach out to a trusted real estate agent who can guide you through the process, offer invaluable insights, and help you navigate the market with confidence.
Budgeting Apps To Help You
YNAB "You Need A Budget," is a personal finance tool that helps users gain control of their finances by prioritizing budgeting and spending. It provides features like budget tracking, goal setting, and financial education to empower users in managing their money effectively.
Empower is a financial app designed to help users take control of their finances by offering features like budgeting, saving, and investing tools. It aims to simplify money management by providing insights into spending habits and offering personalized recommendations to optimize financial decisions. Additionally, Empower offers high-yield savings accounts and cash advances to help users achieve their financial goals faster.
Monarch Money is a digital platform offering financial tools and guidance to empower users in achieving their financial goals. It provides services like budgeting assistance, investment advice, and retirement planning to help individuals take control of their financial future. Monarch Money aims to make financial management accessible and personalized, catering to users' specific needs and aspirations.
Ramsey Solutions offers EveryDollar, a budgeting tool designed to help users track expenses, set financial goals, and manage their money effectively. With a focus on simplicity and practicality, EveryDollar assists individuals in creating and sticking to a budget to achieve financial freedom and peace of mind.
Click Here To Download Savings Plan
Click Here To Download Homebuying Checklist
For Original Templates and More Information Visit: The Mortgage Report or Texas Lending
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