Buying a house can be a confusing process, but like most life-changing
endeavors, it's much easier to understand if you break it down into smaller steps.
First, figure out what kind of mortgage you want. Second, know how much you
can afford and anticipate what other expenses are involved. Third, determine
what you need to finalize a deal. Purchasing a house is likely the biggest
purchase you will make in your life. Most likely you will have to borrow the money
from a bank or other financial institution by getting a mortgage -- a long-term loan
secured by the property you purchase. Shopping for a house is taking the first
step toward fulfilling the dream of owning your own home. You can even deduct
the mortgage interest on your federal income tax. Remember that securing a
mortgage is serious business. The bank owns the house until you pay off the
loan, so look before you leap into that dream home.
Determine Your Mortgage
Most banks offer several types of mortgages, and it’s up to you and your
advisors to determine which type of mortgage will work best for you. If you
are planning on doing some reconstruction on your new home, you could also
look into construction loans. With a fixed-rate home loan your interest rate
will be the same for the life of the loan, and the payment is divided into equal
monthly payments until the loan is paid off. The interest payments are front-
loaded, which means that during the first few years of the loan term, only a small
portion of the payment pays off the principal – most of it will go toward interest.
Adjustable-rate mortgages are a bit different. Unlike a fixed-rate home loan, the
interest rate on an adjustable-rate mortgage, or ARM, changes each year. After
the fixed-rate period, the loan is amortized over the balance of the term with a
rate that changes yearly.
Know What You Can Afford
Do a bit of research to find out about how much money you should and can
borrow, based on your income, credit, and debt. Also take a look at the housing
costs in your preferred areas to figure out if you can actually afford the home you
wish for. If not, it may not be the time to buy. Remember, real estate is a great
investment, but only if you have enough capital to have some of it tied up in a
property for many years. Realistic expectations are key when looking for a new
Finalize the Deal
Once you have found the home you want, it’s time to close the deal. Do some
research on reasonable negotiations for the area in which you’re shopping and
the size of the home. Before you make an offer, be sure your bank will grant you
a loan in that amount. Consider closing costs, renovations, and inspections in
your offer. Hopefully you’ll be in your new home soon.
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