If you’re buying your first home, it can be exciting, but it can be overwhelming, too. Don’t stress just yet! If you know the right things to do to prepare, you can purchase your first home in a way that benefits you, your family and your pocketbook.
I spoke with Minnie Minor, a Financial Consultant with the Oink Group Inc., a Black financial services firm. Minor shared five things you should know before purchasing your first home to ensure it’s the right investment.
Minnie: People should know the difference between an APR and an interest rate. Here it is in simple terms. The mortgage interest rate is the cost a homeowner pays each year to borrow money for a mortgage and is expressed as a percentage rate.
However, an APR, or an annual percentage rate, reflects the mortgage interest rate and other charges. When a person takes out a mortgage, the APR reflects not just the interest rate, but also the points, mortgage broker fees, and other expenses you must pay to get the loan. This is why the APR is usually higher than your interest rate.
Minnie: Homeowners should have a game plan when buying a home. They should ask the following questions: Is it a short or long-term investment? Can they cover the mortgage comfortably with one income if a couple makes the purchase? Can you afford your mortgage with one paycheck? Also, as you go through the process, validate everything you are told. This includes information about the seller, appraiser, real estate agent, lawyer and the bank.
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Minnie: I encourage my clients to pick the 15-year fixed loan option if they can afford the payment. Buying a home is an investment, but it’s also debt. The quicker you can pay off the loan, the better.
Sometimes a customer may opt for an Adjustable Rate Mortgage (ARM) if they plan to purchase a home for a shorter period and it offers a reasonable interest rate. But, if you intend to stay in the home for at least 5 years or more, my suggestion would be to pick the 15-year fixed loan option.
Minnie: Create a budget. When you rent, you have only one payment and perhaps a few utility bills and renter’s insurance. When you purchase a home, it’s different.
There are additional costs. Include not only your mortgage but other expenses you incur when you buy a home. Consider closing costs, property taxes, homeowner’s association and homeowner’s insurance. Pay closing costs up front as it saves you money on the back end.
Another way to decrease your costs is to put 20 percent down on the selling price of a home. If you don’t, you pay the additional fee of PMI or private mortgage insurance over the life of a loan. This insures the lender if you default on your loan.
If coming up with a high down payment on a house is difficult for you, check out FHA. They offer lower down payment options. They also prepare you for home ownership and can help you work on improving your credit to get an optimal interest rate.
Minnie: Be a smart and informed consumer. Do a rent vs. buying analysis before purchasing a home. The whole point of ownership is to come out ahead. If you don’t, buying a home should be delayed until it does.
Learn more about Minnie and how her firm helps people obtain their financial dreams at www.oink-group.com
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