When buying a home for the first time, there are many things to consider.
Sure the number of bedrooms and bathrooms, as well as the appearance, and the ability to afford it makes a difference. But there are many other factors that you should look at before you plunk down your hard earned money.
Below is a list of things that can help you make the right decision before you even head out in search of your new home:
How much home you can afford, your debt-to-income ratio, and credit rating plays a key role in obtaining a home— that’s common sense. But let’s look at some other things that maybe you hadn’t even thought of yet.
1.) SHOPPING FOR A LOAN
Interest rates and loan terms can be a huge determining factor in the home you purchase. Obviously the higher the rate, the more money that comes out of your pocket every month. Interest rates are either fixed or adjustable.
I highly recommend you lean toward a fixed rate, if possible, because otherwise your rates can jump sky high, leaving you out of home when the payment gets to be unbearable. Terms typically run 30, 20, or 15 years long— with 30 year mortgages offering you a lower monthly payment— although a 30 year mortgage costs you much more in terms of interest paid through the life of the loan.
2.) MORTGAGE INSURANCE
Don’t get this confused with homeowners insurance. Mortgage insurance is a separate policy that covers the lender should you not be able to fulfill your obligation to pay on the loan.
Yes, I know, it sounds like just another way for a creditor to take more money. BUT it does have it’s perks too— mortgage insurance can help you purchase a home with as little as 3% down. You can have a lower monthly payment with 10% or less down, there’s assistance programs for homeowners with financial difficulties, as well as homeowner privileges (things you won’t get with a typical FHA loan).
Want to compare your options when it comes to Mortgage Insurance? Genworth offers some great comparisons to help you be informed. Click the image below to learn more!
Something else that’s great about mortgage insurance is that once your loan-to-value declines below 80% you can drop the mortgage insurance altogether. This happens when (after several years of on-time payments to reduce your mortgage have been made), and/or the value of your home has went up by at least 20%. An appraisal (paid by you) is usually necessary to verify the new value.
Once you meet the LTV ratio, you can then ask that your lender remove the MI from your monthly payment, saving you money every month.
3.) MORTGAGE LIFE INSURANCE
No one wants to think about it but at some point your household could experience a sudden death. Should that happen, would you be able to continue making those monthly house payments (if an income from one of the homeowners was lost)? In many cases, I’m sure the answer would be “No”.
This is why I highly recommend you look into adding a mortgage life insurance to your loan. Yes, I know, yet again, MORE money out of pocket. BUT look at it this way, IF the bread winner in your home suddenly died, the funds could be used to either make the monthly payments or even pay off the loan. Payments can be made in annual, semi-annual, quarterly, or monthly payments and the sooner you start, the lower your payments will be.
4.) MORTGAGE DISABILITY INSURANCE
Another policy very similar to mortgage life insurance is Mortgage Disability Insurance. It provides the same benefits as mortgage life insurance but only once the homeowner becomes permanently disabled and is unable to make the monthly mortgage payments. Preexisting conditions do not apply.
To be honest I wish my hubby and I had obtained MDII because as you may already know, he was injured while on-the-job roughly 7 years ago and was released from his position on a disability retirement (because he is unable to perform his job duties). Although he paid into a private retirement, he hadn’t yet reached the required years in service to be awarded 100% of his income so we lost a pretty good chunk which lead to financial problems. Luckily, because it was work related injuries he now receives an income (in excess of his retirement) that makes up for the rest of the income he received while employed.
Had we signed up for MDII prior to the injuries, our mortgage would have been paid off long ago and we would not have had the financial struggles that we did.
Planning ahead can obviously save you money in the long run and keep your home running more smoothly should an unexpected event arise.
Obviously there is a whole lot more to think about when buying a home for the first time but these are extremely important points to consider, yet are sometimes overlooked.
For more information on life insurance itself, check out this article on Why Women Need Life Insurance. Can you believe a whopping 43% of working women do not even have it?
© 2013, Dee @ Bella Savvy. All rights reserved.