How to Buy a House – Avoid Serious Mistakes and Learn How to Buy a House

By Gert Hough

You have to do a lot of research if you want to buy your dream home. You must educate yourself on the basic procedure of how to buy a house for you or your family. This article may be a good place to start.

You should first consider your reasons for buying a home. Why do you want to own a house? You may want to own your own dwelling place so you can have the freedom to decorate and arrange it the way you desire. You can decide which color you want your kitchen or bedroom to be. You can also change the garden or build a patio. The choice is yours to make.

Another good reason you might have is the fact that over time the value of a house generally increases. The specific value of a house may increase or decrease according to economic cycles. Yet it is a good investment for the future. You will be living under your own roof which will provide you with shelter, security, space and a fence against a conniving thief called inflation.

You can use the benefits of home ownership to save on your taxes. The interest on your mortgage may be tax deductible when you pay your tax return. If you are buying your first home, the property tax may be deducted from your tax payment. You will have to check with your country’s income tax service to be sure which tax deductions are applicable where you live.

Buying a house can be a complicated and stressful experience. It will help you a lot if you have a clear picture of what kind of a house you wish to own when it comes to location, price and design. You have to be reasonable and refrain from buying a house that you may not be able to afford in the future. You can enlist the help of a good real estate agent to help you find houses for sale that you might be interested in. An estate agent can also help you with the whole process of buying a home.

To start the buying process, you need to have the money to pay for a deposit on the house. You will need to pay a deposit of about 10 to 20 percent of the total value of the home you want to buy to the seller. Unless you are stinking rich, you will probably need to lend the rest of the money from a financial institution.

A possible choice might be to get a mortgage from a commercial banking institution. Keep in mind that commercial banks also provide other financial services and that they do not focus exclusively on mortgages. The best source for obtaining a mortgage might be to talk with a few mortgage brokers. They can offer a much wider range of mortgage services to you than an ordinary bank.

The ratio of your monthly income that you are able to spend on the home loan repayment is important. The maximum percentage of your income that you can spend on repaying the loan may be anywhere from 30% to 40%. Obviously, you cannot spend all your income on repaying the debt associated with buying a new home. You have other bills to pay as well.

When applying for a loan from a lender, make sure that you provide all the relevant information. Do not try to hide things, since this may create problems during the home buying process. There are many more things to learn about how to buy a house. Therefore, complete your research into the problems and possibilities of home ownership and try to avoid making serious mistakes.

Searching for news about Bank of America home loans? — Bank of America Home Loans

Looking for information about real estate lawyers? — Real Estate Lawyer

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By far, this no down payment mortgage loan has become very popular with first time home buyers this year.  Specifically, Wisconsin has many areas in which the property you are looking to purchase will be eligible for this program.  Wisconsin mainly consists of rural areas.

Here is a direct link to a map that shows the areas of Wisconsin that are eligible for a rural housing loan.
http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfp&NavKey=property@11

The rural housing loan does apply throughout the nation, but you have to find the site that pertain to your state.  Each state is going to have different areas that allow eligibility.

To learn more about the details of the Rural Housing Loan, go to no down payment mortgage loans in Wisconsin.

Since this blog has been around for almost 2 years now, many new readers may not be aware of some of the other helpful mortgage advice topics that have been shared in the past.  First time home buyers seem to be the type of buyers that are actively looking to buy a home this year, so much of this advice will be for the first time home buyer.  The more mortgage advice that can be absorbed the better. 

Every time I take on a new first time home buyer client, I take the time to educate them with the entire mortgage process.  This is a necessary, because the entire process of buying a home and financing it can be overwhelming.  If there isn’t someone to walk you through the entire process, then take the time to gather up all the mortgage advice posted here.

This year is now being considered one of the best years to buy a home, because of a large tax credit for first time home buyers, interest rates at record breaking lows, and home prices have dropped over the years.  These buyer benefits have helped many people decide that 2009 is a great year to buy a home.

I wanted to remind you of some of the other content on this site that could come in handy when looking to buy a home in 2009.  Use this mortgage advice to your advantage and you will be sure to find a great deal when buying a home this year.

Here are 3 posts worth your time to read:

What is a FHA mortgage loan? – This has become the most popular mortgage loan today.  A detailed look at what the FHA mortgage loan is.

Top 5 questions answered for first time home buyers. – Popular questions and answered that all first time home buyers should know!

Get your mortgage quote in writing. – Talks about what paperwork to look for when getting your mortgage quote in writing.

This question has been very popular among the people looking to refinance, since the mortgage rates continue to be at historic lows.  (I heard that someone locked in at 4.5% the other day…)

In all reality, there are two main things to consider when deciding on a 30 year mortgage versus a 15 year mortgage.

1.  The difference in monthly payment.

Consider the fact that the minimum payment on a 15 year mortgage will be higher than the 30 year mortgage.  If you are financially in a position to comfortably make the minimum payment on the 15 year, then we highly recommend the doing the 15 year mortgage.  Now, keep in mind the 30 year mortgage has a lower minimum payment.  If you are doing a standard conventional mortgage, it will not have a prepayment penalty for paying down or paying off the mortgage early.  So, it might be a good idea to go ahead with the 30 year and make larger payments when you can afford them, since there is no penalty for those extra payments or early payoff.

2.  The amount of interest you save over the life of the mortgage.

We are going to use this example to show some numbers: 
$200,000 mortgage at a 5.0% interest rate for both the 30 year and 15 year.

The total amount of interest you will pay over the life of a 30 year mortgage is $186,513.24
The total amount of interest you will pay over the life of a 15 year mortgage is $84,685.48

That’s a whopping $101,827.76 difference in interest you will pay!!

Ok, ok, I know what you are thinking and that’s “I probably won’t stay in this house for 30 or even 15 years”.  That’s ok, we’ve given an example of more real numbers.

The total amount of interest you will pay in the first 5 years of a 30 year mortgage is $48,076.13
The total amount of interest you will pay in the first 5 years of a 15 year mortgage is $44,009.37

That difference is $4,066.76.  Yes, just in the first five years of your mortgage you will save $4066.76, when you choose the 15 year mortgage versus the 30 year mortgage.  Again, if you can afford the 15 year mortgage payment, we highly recommend paying less interest over the life of the mortgage loan.

Here is something else to think about when deciding.  This is an example of how much more you will pay down your mortgage balance when deciding on the 3o year mortgage versus the 15 year mortgage.

Example:
You have a $150,000 loan amount and the interest rate is 5.0% on a 30 year mortgage. 

The principal and interest payment is $805.23.  Of that $805.23 payment, only $180.23 goes toward the principal balance of your mortgage loan.

Now, compare the same loan amount and interest rate on a 15 year mortgage.  The principal and interest payment is $1186.19.  Of that $1186.19 payment, $561.19 goes towards the principal balance of your mortgage loan.

In a full amortization schedule, the amount of your payment that goes towards principal increases each month.  For the sake of simple numbers, let’s assume the same amount of principal goes towards your balance each and every month.  Using the example of $150,000, the difference in the principal is $380.96.  ($561.19 – $180.23 = $380.96)  If you took $380.96 over the next year, that would equal $4571.52.  Over 5 years, that would be a whopping $22,857.60!!  Yes, that is how much you would reduce your mortgage balance over the next 5 years, using the example above.

We always recommend a 15 year mortgage, for another reason that you will pay down your mortgage balance faster.  Also, you usually get a lower interest rate on the 15 year mortgage versus the 30 year mortgage, so you will be paying less interest over the life of the mortgage as well.

We will continue to write more about mortgages in the coming weeks, since mortgage refinances and first time home buyers are where most of our recent questions have come from. Since mortgages rates continue to be at historic lows and first time home buyers that purchase a home by November 30th will receive a $8000 tax credit, these two things alone have stirred the mortgage craze lately.

When you are buying a home, regardless if it’s your first home or your 8th home, you are allowed to have the seller pay for your closing costs.  As a buyer in this type of market, you have a better chance of the seller paying for some, if not all, your closing costs.  All you need to do is  include the total amount of your closings costs into your offer to purchase contract.  If you are not entirely sure how to do this, then let your real estate agent know you are thinking about doing this.

Now, if the seller says they do not want to pay for your closing costs, then all you have to do is show the seller he or she will not loose any of their bottom line if you increase the purchase price enough to cover all of the closing costs.

Example:

Let’s say the you are offering $200,000 for the purchase of this home you want to buy.  Your total closing costs for the mortgage is $1900.  Offer the seller  a purchase price of $201,900.  The seller will than gladly pay for your closing costs, because his bottom line does not change.

Yes, essentially you are paying for the closing costs over the life of the mortgage loan, but the point here is that less money has to come out of your pocket at closing.  Can you think of a few good things to buy for your new home with $1900?

Keep in mind that the lender allows up to 3% of the purchase price for the closing cost credits.  In some cases, the cap is 6%, but it’s normally 3%.

Example:

On a $200,000 purchase price, the maximum closing cost credits would be $6000.  ($200,000 x 0.06 = $6000) 

A way to use these closing cost credits to the fullest extent is to use the extra money to buy down the interest rate.  Depending on home much it costs to buy down the interest rate, you could save $50-$100 more on your mortgage payment!  Not to forget about the amount of interest you will save over the life of the loan when the interst rate is lower.

This kind of thing has been around for awhile, but since we are see more and more people starting to buy homes again, we thought a little refresher would help.