July 16, 2024

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The American Dream – Owning Your First Home

Owning your own real estate is more than being the biggest investment the great majority of Americans will make; it is the essence of the American dream! Owning ones own home is a great blessing. Therefore; although owning a home will usually take commitment, discipline, and consistent work, it is well worth the effort.

Before one even begins the epic quest for a home, certain steps should be in order. First, understand personal finances. Recreate the personal monthly budget and figure out exactly how much can be spent or how much you are willing to spend on the monthly mortgage payment. Next, credit score companies by law are required to give one free copy of the credit score per year to each individual consumer. Obtain a copy of your credit score because this will save time for all parties as the process continues. Third, an easy suggestion would be to do a little online research on the simple jargon or lingo of the real estate world. The more one understands the terminology, the easier the process will most likely be.

The first thing to consider when buying home is your finances. In addition to establishing what monthly payment can be budgeted, getting pre-approved is the first important step. When one gets pre-approved by a lending institution, the lender will effectively state how much money they are willing to lend. This will give the buyer a realistic approach to which homes they are eligible for and this will please the seller. Even without pre-approval, a loan will be requested and having the credit report will hasten this process. In life, most everyone slips up one time or another, so be prepared to explain each strike on the credit report and how improvements have been made.

Another financial principle deals with the monthly budget. Some well established and time tested standards set by Fannie May are great for strong guidelines. The total amount of the monthly mortgage payment should not exceed 28% of ones gross monthly income. The total amount of debt, including student loans, credit cards, car payments, etc. should not exceed 36% of an individual’s gross monthly income.

In addition to the long term monthly cost of a mortgage loan, one must consider the several high costs at closing. Paying a strong percentage down will help decrease the interest rate and is highly recommended. Anywhere from 10-20% of the total home cost could and should be used as the down payment. The closing costs are seemingly never ending as well, often times costing anywhere from 3-8% of the entire cost of the home.

Finally, selecting the right type of mortgage is the key. Typically mortgages are either fifteen or thirty year payoff mortgages and are either fixed rate or adjustable rates. Deciding what combination to use can usually be simplified to how long one plans on keeping the home and if they want lower monthly payments with higher interest or higher monthly payments with lower interest. Thirty year fixed rate mortgages are the most popular. If a buyer plans on remaining in a home for under five years, then an adjustable rate is probably preferred. If a buyer wants to be putting more money towards the principle than interest than fifteen year mortgages are more preferred. In the most common case of a person planning on living in their home for an extended period of time and wanting to pay as little as possible each month on the mortgage, a thirty year fixed rate mortgage is the answer.