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Buying a Home

Real Estate Tips for Buying a Home

The Kolina Real Estate Group

Pismo Beach, (877) 465-3756

The Kolina Real Estate Group is the expert in Central Coast golf, vineyard and beach real estate properties! Let them help you find the community and home tailored just for you. Contact Shelley Kolina at Keller Williams in Pismo Beach toll-free at (877) 465-3756 to get started with your central coast home search and obtain a FREE comprehensive market analysis and the most current property listings!

Buying a home has many benefits over renting. You gain equity, receive tax benefits from the interest you pay on your mortgage, you have more privacy and are free to decorate as you wish.

Here are some tips to help you make the process of purchasing your home a success.

Prequalify for a loan

Being prequalified for a loan determines how much house you can afford. It also allows you to move more swiftly when you find the right house, especially when you aren't the only interested buyer.

Shop for mortgage rates and terms

A difference of even half a percentage point can make a huge difference in how much you pay over the life of a loan. For example, the difference in the monthly payment on a $200,000 mortgage at 6 percent vs. 6.5 percent is about $70 per month. Over 30 years, that's over $25,000.

Using a buyer agent

A buyer agent is legally responsible for representing the buyer's interest in a real estate transaction. Generally, the buyer agent is compensated by the seller at the time you purchase a new home. There are some limitations to using a buyer agent, however.

Features that help or hurt resale value

In some areas, a swimming pool actually detracts from a home's value and makes the home harder to sell. In neighborhoods with two-car, attached garages, a single-car or detached garage may impact the home sale and future value. Your Realtor can point out features that hurt, as well as those that help, resale value.

Rate the houses you tour

After touring each home, write down what you liked and didn't like. Develop a rating system which will help you narrow the field down to the house that's the best for you.

Understanding Mortgages

A mortgage is a long-term loan that a borrower obtains from a bank, thrift, independent mortgage broker, online lender or even the property seller.

The house and the land it sits on serve as collateral for the loan. The borrower signs documents at closing time giving the lender a lien against the property. If that borrower doesn't make payments as agreed, the lender can take the home through foreclosure.

Because mortgages are such large loans, consumers pay them off over long periods -- usually 15 to 30 years. Their monthly payments gradually whittle away the principal balance, slowly at first then rapidly toward the end of the loan.

The Components of a Mortgage Payment

When escrow is used, a monthly mortgage payment is called a PITI payment. That's because each one covers a portion of the following four costs:

• Principal -- the loan balance
• Interest -- interest owed on that balance
• Real Estate Taxes -- taxes assessed by different government agencies to pay for school construction, fire department service, etc.
• Property Insurance -- insurance coverage against theft, fire, hurricanes and other disasters

Borrowers can choose to pay their real estate taxes and insurance in lump sums when they come due, rather than in monthly installments to their escrow accounts.

Depending on the kind of mortgage a borrower has, the monthly payment may also include a separate levy for private mortgage insurance (PMI) or government-backed mortgage insurance premiums.

The breakdown of each payment (the amount that goes toward principal, interest, etc.) changes over time because mortgages are based on a repayment formula called amortization. That's a fancy term meaning the lender spreads the interest you owe on the mortgage over hundreds of payments so that the overall loan is as affordable as possible.

Amortization Basics

On a 30-year, $150,000 mortgage with a fixed interest rate of 7.5 percent, a homeowner who keeps the loan for the full term will pay $227,575.83 in interest.

The lender can't possibly expect that person to pay all that interest in just a couple of years so the interest is spread over the full 30-year term. That keeps the monthly payment at $1,048.82.

But the only way to keep the payments stable is to have the majority of each month's payment go toward interest during the early years of the loan.

Of the first month's payment, for instance, only $111.32 goes toward principal. The other $937.50 goes toward interest. That ratio gradually improves over time, and by the second-to-last payment, when we're all driving hovercars and have colonized the moon, $1,035.83 of the borrower's payment will apply to principal while just $12.99 will go toward interest.