You Want to Buy a House?
Everyone’s dream is to grow up and buy a house. Who wants to live somewhere and pay rent all your life. Each month paying out money and not owning a house in the end. I have heard many say they want to save for a house but many have no real idea of how it works. The first step is figuring out if you should remain renting or should you buy.
The problem with trying to make plan is that it will be forever changing depending on interest rates at the time. The amount of payments depends on the amount of the down payment, the length of amortization and the period of the mortgage. There are many many reading this right now that are already confused. We often think we can only afford a limited amount but don’t realize that over a longer period of time the difference from a $100,000 and a $150,000 home is not that much difference in a payment.
When you are ready to buy a house there is more than just saying I want a house, I have a bit of money saved for a down payment. You need a specific down payment. There are rules about where the down payments comes from. Should your amortization period be 10 years, 20 years, 25 years? Wondering what amortization even means? These are amazing questions. There is a online tools to help you sort out the all the math for you to make that part less stressful and I will walk you through the rest to have a basic plan. You need a plan to get ready for a house.
The first thing you need to do is decided what your must haves are in a home and what are deal breakers that you cannot go without. You need to come up with a price range you “think” you can afford and than pick out a price range you wish “someday you could afford.” You need to have a starting point. Credit is also something you need to have and in order to get a good mortgage rate (the amount of interest you will pay). We have previously written article on how to improve your credit and what effects your credit.
You are going to have two separate dates and times the amortization time is the amount of time which it would take to pay off that house at that current in full. Most mortgages however need to be renewed between 3-5 years depending on your lender and to lock in the lowest rate possible. Once the 3 or 5 year term is up, you go back to your lender and renegotiate the mortgage (sign all the papers again) at a better rate.
When we purchased our home five years ago, things were a tad different and I had received a settlement so the rules didn’t apply but we didn’t know that at the time so we had to have a list of what to do and than fix and cross off our list as we went to obtain our goal; a home purchase. You need to have a down payment which is recommended of 20% of the home. If the home you are looking at cost $100,000 you ideally like to have a $20,000 down payment; this can greatly change due to financial institutions rules however these are great guides to help you.
When we purchased our home we only needed to finance $82,000 and the banks prefer longer terms so we went with the 10 year term. Once the mortgage was set up online, we and the freedom to make one time extra payments or increase the monthly payments. These are screen shots of the examples from our actual home.
We talked and found an amount we were comfortable with and added amounts $50 extra per month. This jump from $828.00 a month to only $905.00 a month took off almost 2 years and look at the savings!
We played around some more and got our mortgage payment upped again a bit and you can see by the calculator figures that made our mortgage go from 10 years down to 7.5 years. That took a 2 1/2 years off our mortgage and saved us $5000 in interest!
This is a great way to find out the benefits of paying a bit extra every month and how much you really can afford. The caculator allowed you to put in various amounts and see where you are comfortable. You can see that the difference in the cost per month from the house you thought you could afford and the price you wish you could afford. It’s great for goal setting and seeing how a few extra dollars a month can save you hundreds and sometimes thousands of dollars. It won’t be long before you stop renting and living in your dream home.