What a year 2020 has been! There is nowhere to look but up, and it’s time to start making those New Year’s resolutions! If purchasing a home in 2021 is on your list of resolutions, you probably have many questions. Let’s answer some of those questions for you.
Is Purchasing A Home In 2021 A Good Idea Or Should I Wait?
Naturally, with the economic uncertainty that the pandemic brought us in 2020, your first question is likely to be this one. There is a lot to consider before purchasing a home, whether it’s a home that you will reside in full-time or even a second home. Either way, you’ll need to weigh out the risks with the benefits of owning the home. The good news is that experts are predicting that 2021 is the year to buy a home! Mortgage rates are at an all-time low, and there may be many opportunities you can take advantage of as a home buyer in a struggling economy. You may find some fantastic deals on loans and discounted home pricing when sellers are eager to sell. Some may include additional benefits such as waiving closing costs.
How Much Of A Mortgage Can I Afford?
Most people start their home buying journey by getting prequalified for a loan. But don’t be fooled by assuming the quotes you get from lenders are the right budget for you. Financial expert Dave Ramsey has some great tips for first-time homebuyers. A good rule of thumb is to keep your mortgage payments lower than 25% of your monthly take-home pay. You can use a mortgage calculator to get an idea of your ideal monthly mortgage payment. Most experts recommend saving up for at least a 20% downpayment to avoid paying for Private Mortgage Insurance (PMI). If you aren’t able to put down 20%, don’t go lower than 10% for your down payment, or you will regret having to pay the extra interest rate and possible fees.
What Do I Need To Qualify For A Loan?
Pre-qualification helps you figure out how much home you can afford, and it’s also best to have this process already complete when you are ready to make an offer on a home. Pre-qualification is not a guarantee for a loan, but it shows sellers that you mean business if you have taken this step. You can call around to banks and lenders but be careful not to have too many hits on your credit report. You want your credit in top-notch shape during this process. Most lenders will check your credit score, employment history, your debt-to-income ratio, as well as how much you plan to put down for the home.
Should I Get A Fixed-Rate Or Adjustable Mortgage?
There are pros and cons to both types of mortgages, and the answer depends on your personal preference. Fixed-rate loans have a set interest rate when you take out the loan until the loan or your refinance is paid in full. Many people choose fixed-rate loans because of the stability in knowing their rate will not change for the loan’s life. Adjustable loans are tempting to first-time buyers because they often start with a lower rate than fixed-rate loans, but only for a limited time. Make sure you consider your payments for the loan’s entire life if you go with adjustable.
Should I Get A 15-Year Or 30-Year Mortgage Loan?
There are pros and cons for both of these types of mortgage loans. This decision also depends on your personal preference. The best scenario would be to get a 15-year loan because you will save on interest in the long run. The downside is that you will likely pay a higher monthly payment with a 15-year versus a 30-year loan. With a 30-year loan, your monthly payment is lower than a 15-year loan because you have twice as long to pay off the loan. However, 30-year loans typically have a higher interest rate than 15-year loans.
Will Taxes And Insurance Be Included In My Monthly Payment?
Your lender will go over these options when purchasing a home to determine what is best for you. You will be required to purchase a homeowners policy and pay property taxes. Some people choose to pay their property taxes in a lump sum to save in the long run, but others like to have them spread out in monthly payments added to their mortgage payment. Your insurance agent can discuss the options with you as well. You can shop around for insurance to get the best rate.
What Are Closing Costs For Purchasing A Home?
Ask your lender about closing costs because every lender is different in their requirements. As discussed in this article, 2021 may offer first-time buyers some great benefits for buying now, such as waiving closing costs, which can add up, so this is a great deal if you can get it. Typical closing costs include various fees such as appraisal fees, title insurance fees, attorney fees, and even taxes and insurance. All of these fees can add up to several thousand dollars, so it’s best to shop around before settling on a lender.
Where Should I Buy?
You probably already have a good idea of the location you want to buy. Your realtor can help you determine what neighborhood is right for you. Consider how long you plan to live in the home. Do you or will you likely have children while living in the house? If kids are part of the equation, you will want to research the schools in that area you plan to live. Consider the crime rate and safety of the neighborhood, too. Are there parks and entertainment nearby? How far will you need to drive for shopping? And consider the property taxes as part of the equation. You can often save big on property taxes just by moving a little further away to another town or county. The same goes for utility and insurance costs. You may save a lot of money in living expenses depending on the area you buy.
Should I Buy A New Or Existing Home?
Again, the answer to this question is based on your personal preference and has pros and cons for both types of homes. Investopedia breaks down the pros and cons for you. The advantages of buying an existing home are lower costs and added convenience, but you will need to consider the house’s age and condition. If you love the idea of designing and building your own custom home, it can turn into quite a timely project from finding the land and builder and all of the choices from the design to how you want to heat your home and many more.
What Should I Look For When Touring An Existing Home?
Newbies don’t always think to look at anything other than the size of the rooms, closets, and bathrooms. When touring a home, you should picture your style and furnishings and see if you still like the house as much. Consider things like the size of the kitchen and dining areas and if it will accommodate your family. If you like to entertain, you might want a spacious and open floor plan and a great outdoor seating area, too. Look beyond cosmetics that are easy to change, such as paint colors and flooring. Check for any damage to the home or heavy wear-and-tear. Check ceilings for water damage. Watch out for an old roof and old electrical wiring. A home inspection would discover these types of things if you miss it on the home tour, but it’s good to know right away that a home might have costly repairs in the near future.
Now that you have your top ten questions answered, it’s time to do your homework and start dreaming! Start searching for your dream home right now!