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Preparing To Buy Your Home
In most cases, buying a home is a smart move. Paying rent provides a roof over your family's head, but it does not build equity. Equity is the difference between the original mortgage amount for your home and the market value when you sell it.
Buying a home also gives you certain tax advantages in the form of two major deductions on your annual income tax return. The amount you pay in interest on your mortgage loan as well as the property taxes that you pay on your home are both tax deductible.
In preparation to buy, you'll need to do certain things
First you will need to figure out how much you can really afford. To do this, a complete accounting of your income and expenses, as well as your savings will be needed. See our Loan Toolbox for useful calculators and resources to help you with the calculations.More than likely, you will have to borrow money to finance the cost of your new home and the lenders will require this information.
Perhaps the most difficult part of home buying for the average American buyer is coming up with the down payment. Most lenders will require 5% to 20% of the purchase price of the home up front. Many people look to family for help with this, but in doing this, they will require a letter from the relative stating that the money is a gift and not a loan that must be repaid. Remember that the higher your down payment, the lower your mortgage payments and closing costs will be.
In order to qualify for a mortgage, lending institutions will most likely require that your payment amount be no more than 28% of your gross income. But, you will have other bills to pay as well, so calculate those in and look for combined total of 36% of your income. Again, our Loan Toolbox has the tools you need to accurately calculate these amounts.
You may want to "prequalify" for your mortgage. Doing this will take most uncertainty out of what you can afford to buy and will give you an advantage over non-prequalified buyers. Most lending institutions will readily prequalify you.
When you know what you can afford, decide what kind of house you want. A notebook will be helpful here. Jot down your requirements, plus any extras that you would like your new home to have. Also, remember that location is perhaps the most important aspect of your new home. Not only does it need to be convenient for you, but a house in a good location helps build your equity.
Take your notebook with you when you begin looking at houses. This way, you can take notes on each house for reference later. When you find a home that particularly interests you, it is a good idea to have a professional inspect the home for structural stability. This will give you a better idea of whether there will be additional and unexpected expenses involved in buying the house that must be taken into account in your calculations.
Being cautious now in planning your home ownership can save you what's commonly become known as "Buyer's Remorse" later. Take the time to plan effectively and protect your family from future headaches.
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