Month: April 2019

Successfully financing a home requires several key steps. Too often, buyers are unaware of what is involved in this process, and they suffer from missteps. Here are three of the most common blunders (and how to avoid them):

1. Failing to Think Long Term

Purchasing a home is one of the most significant financial investments you’ll ever make. You’ll probably do this only a handful of times in your life, so you must really think it through.

The key is to think long term. Consider: Will the loan payment you are taking on remain manageable for the foreseeable future? Will changes in family status or employment status impact your ability to continue to make your payments month after month? Will you still be able to save money each month after covering all your expenses?

Carefully considering these questions up front will help you avoid making a purchase that you later regret.

2. Underestimating the Cost

Unless you qualify for certain Veteran’s Administration loan programs, you’ll need some sort of down payment to purchase a home. Beyond this, you will also need to cover closing costs, and you may have to come up with cash for taxes and/or other escrow reserves.

Be sure to incorporate all these costs as you determine your price range and negotiate your purchase.

3. Ignoring Their Personal Credit Profile

More than anything else, your credit will determine what loan terms you’ll qualify for and the interest rate you’ll pay. Your credit report is a window into your finances. Take a look through it. Your lender will. Depending on what they see, the lender may ask you to pay down or pay off debt to improve your score before you can purchase a home.

While this may be simple enough to do, it may also take time. This makes it important to determine your credit needs early in the process.

Reach out to learn how you can put yourself in the best possible position to purchase a home.

Equity is the difference between what you owe on your home and what it’s worth. If you purchase a home using a small down payment, you’ll have a small amount of equity.

However, as time passes, your mortgage balance will decrease and (hopefully) your property value will increase. This will strengthen your equity position.

There are several things you can do with this built-up equity in the property. If you decide to sell the property, you could take that equity and use it as a down payment for the next property you buy.

You may decide to stay where you are and use the equity in the property for your own purposes. Some property owners use their equity for home improvement, to pay down higher-interest debt, or to pay for college for their kids.

How would you access this equity? Your lender could help you take out a home equity loan or establish a home equity line of credit.

Each has both benefits and challenges. The home equity loan will most likely give you a fixed rate, but once you take it out, you would need to pay back the entire loan before being able to reuse that portion of your equity.

The home equity line of credit, on the other hand, works similarly to a credit card. You can pay it down or off, then reuse the same money again and again. But your variable interest rate is tied to an economic indicator, meaning your payment could go up significantly over time.

Get in touch with our office to learn more about your equity loan options.