Find out how to begin the home-buying process, what you can afford, special programs for first-timers, and more. Get the Money Girl book at http://MoneyGirlBook.com
Money Girl
333 MG What Every First-Time Home Buyer Should Know
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Buying a home is a big decision. Not only is it a huge financial investment, but it's a place where you'll become part of the community, interact with neighbors, and perhaps raise children. In this episode, I'll answer six common questions from first-time homebuyers. You'll find out how to get started, what you can afford, and how to navigate important parts of the home buying process. The first common question that I hear is, "Why should I buy a home instead of continuing to rent one?" Well, most of us start out as renters because it doesn't require a big upfront financial investment. But the downside to renting is that your monthly payments are a pure expense. In other words, once you make them, they're gone forever. On the other hand, when you own a home, there are some nice financial perks, such as a portion of each payment reduces your outstanding loan balance each month if you have a fixed rate mortgage. Your mortgage interest and property taxes can be deducted from your taxable income each year, and the market value of your home may rise over time, allowing you to build equity. Additionally, when you own a home, you can have the lifestyle you want, spread out, and express your personal style. However, you'll be responsible for maintenance and many unexpected expenses. Question number two, when should I consider buying a home? The right time to consider buying a home is different for everyone, but here are a few important questions that you should ask. Do I have good credit? Can I demonstrate two to three years of steady income from a job or business? Can I afford to pay a mortgage, taxes, and insurance every month? Is my current income likely to continue or increase? Will I stay in the home for at least five years? And do I have enough save for a down payment? We'll talk more about this in a moment. If you answer yes to these questions, you're probably in a good position to seriously consider buying a home. Common question number three, how much down payment money will I need? How much down payment you'll need depends on several factors, including the price of the home, the type of mortgage you get, and customary closing costs for buyers in your market. In general, you need enough cash in the bank to cover three major costs. The first is earnest money. This is the good faith deposit you make on a home when you submit an offer. The customary amount varies depending on the market, but might range from 1 to 3 percent of the offer price. If your offer is accepted, the funds are applied toward your closing costs. If not, your earnest money is returned to you. The second cash cost you'll have is the down payment. This is the percentage of the home price that you must pay at closing. The more you put down, the lower your mortgage payments will be. Some loans require you pay 10 to 20 percent of the purchase price, but other loans, especially those designed for first-time home buyers, such as an FHA loan, may only require 3 percent down or less. And the third expense you'll have to cover is closing costs. These are fees you must pay at the settlement, such as lender charges, an appraisal, survey, inspections, attorney fees, taxes, title insurance, and any other processing expenses. You should receive an estimate of your total closing costs from your lender, so you aren't caught by surprise. Common Question #4. What financial programs are available for first-time home buyers? The US Department of Housing and Urban Development, or HUD, and one of its agencies, called the Federal Housing Administration, or FHA, work to make buying a home affordable for more Americans. The FHA has helped more than 30 million people become homeowners since 1934. They don't actually make loans, but ensure them, so if a buyer doesn't make payments, the lender will still get their money. This encourages lenders to give mortgages to hopeful home buyers who might not qualify otherwise. With an FHA loan, you don't need excellent credit or a high-down payment to qualify. The loan limits for a single-family home vary throughout the country, but they could range from 115,000 to just over 208,000. Ask your lender for details about FHA programs for first-time home buyers, or contact a HUD housing counselor for free or low-cost advice about your options. I'll include a link to more information in the transcript for this show. Now that we're in Q4, it's a good time to start thinking about making memories with the people you love most before the end of the year. 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Visit ixl.com/moneygirl to get the most effective learning program out there at the best price. One question number five, how much house can I afford? Bankrate.com has a handy tool called the How Much House Can You Afford Calculator? Use it to see what price will work for your budget. If what you can afford is significantly less than the average cost of homes in your area, then you might need to wait until you can pay a larger down payment. Remember that you'll have other costs every month in addition to the mortgage payment. The total cost is called P-I-T-I, which stands for Principal, Interest, Taxes, and Insurance. Principal is the repayment of the amount you borrowed. Mortgage interest is the payment to the lender for the use of the money you borrowed. Home insurance protects you and the lender against many different types of damage, such as natural disasters, theft, vandalism, and legal hazards. Home property taxes are annual city and county assessments. Taxes and insurance can be rolled into your mortgage payment and then paid by your lender on your behalf. Additionally, you'll have to pay utilities, maintenance, and perhaps homeowner association dues. Common question number six, what should I expect at the home closing? A home closing is where all your fees and costs of buying the property are finalized on the settlement statement, which is form HUD-1. It's your last opportunity to make necessary changes to your paperwork, so don't hesitate to ask questions about charges that you don't understand. The closing agent will have a stack of documents for you and the seller to sign. You can handle it in person or remotely through the mail. The mortgage, indeed, will be recorded in the county records registry. You'll receive a copy of everything, including the keys, and then you'll be an official homeowner. If we haven't connected on social media yet, please visit Facebook and do a search for Money Girl. If you're on Twitter, you'll find me under user name @LaraAdams, L-A-U-R-A-A-A-D-A-M-S, with no space. And for more exclusive money tips that you won't find on the podcast, be sure to sign it for the free Money Girl newsletter. Everything I've mentioned is on the Money Girl page at quickanddirtytips.com. To read a transcript of this show, look for episode number 333, called What Every First Time Homebuyer Should Know. I'm glad you're listening to Ching. That's all for now. Courtesy of Money Girl, your guide to our richer life. There are some cases so infamous that we have all heard about them. But some of the coldest cases, the most mysterious, are the ones that you've never heard of before. I'm Ashley Flowers, and every Wednesday on my show The Deck, I dive into the coldest of cold cases. 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