Despite all the chaos in the housing market, a home is still a very smart investment, when done carefully. Unlike rent, mortgage payments actually help you build equity—equity which you can tap into when you need cash at a low interest rate (in the form of a home equity loan or line of credit) or which you can enjoy in a lump sum when you sell. Or both.
Of course, in order to realize value from a home purchase, it’s important to buy the right home with the right mortgage. Here are some questions to consider, when you’re preparing to buy:
1. How much home can I afford? Many lenders and advisors will tell you that your monthly costs should not exceed 28% of your income—and that should include not only your mortgage but also insurance, upkeep, homeowner’s dues if you purchase a condo, and utilities. Don’t forget to add closing and moving costs into your initial purchase estimate. GHCU has an online calculator that can help you establish your home-buying budget.
2. How long am I planning to stay in this house? The answer to this question may help you determine what kind of mortgage will work best for you. If you’re in it for the long haul, a 30-year fixed rate offers stability and predictability; if you plan to sell in a few years, an Adjustable Rate Mortgage (ARM) with a low initial rate may save you money.
3. Where should I get my mortgage? Before you sign, shop around. Compare rates, but also consider closing costs as well. The amount you pay at closing can vary considerably from lender to lender, so be sure you get your Good Faith Estimate (GFE) and add that in when making your budget and choosing your lender. Feeling comfortable with and confident about your lender is important too; don’t hesitate to drop by and chat. Your home is likely to be the biggest investment you’ll make, so only deal with a lender you trust.
4. Is now the right time? Interest rates are still hovering at historical lows, and a fixed-rate mortgage at a low rate can save a homebuyer thousands of dollars in interest. There’s still a glut of homes on the market, and construction companies with idle workers may be willing to cut a deal on building you your new home. If your credit score is in good shape, and you have enough saved to make a solid down payment, now might just be an excellent time to buy.
If you’re considering buying a home, the more information you have, the better. You’re always welcome to stop by a GHCU branch to talk about your mortgage options.