MONEY MATTERS
Be Smart When Looking for a Home Loan
By Teri Williams, President of OneUnited Bank
Everyday I’m asked questions about home financing. Is it the right time to buy a home? What type of loan should I have? How much should I put down? These are all very important questions. Buying a home is one of the biggest financial decisions we make in our lifetimes. It’s important to fully understand all the costs and details so you can make an informed decision. It’s also important to stay within your budget so that you can remain safely in your home until you are ready to sell.
Should I buy a house?
This should be your first question. Buying a home is a major decision and requires a lot of preparation. Home prices have decreased and interest rates are low, so it appears to be a good time to buy a home. But the big question is – can you afford it?
When deciding if you can afford a house (either your first home or a new home to replace your existing home), you need to understand your budget and the full cost of purchasing a home. Develop a realistic budget based on your current bills and expenses. Include all items such as rent or your current mortgage, credit card bills, utilities such as electricity and phone bills and groceries. Also make sure to include your cash purchases such as coffee, the movies or other miscellaneous expenses. Compare your current budget to a projected budget if you bought a home. Maybe you will save on rent and reduce other expenses. However, when you are a home owner, there could be repair costs, condo fees, and other miscellaneous costs that you will need to pay. Be sure to have all the details before you decide to buy a home and make an offer.
How much should I put down?
The question of a down payment is important and timely. Last year we saw the bubble burst due to many people buying a home with 0% down! This led many people to buy houses that were too expensive for their budget and we are seeing the very sad results today.
My recommendation is to put at least 20% down for your home. This may seem like a lot, but it pays over a lifetime. You will receive better terms and are more likely to pay off your mortgage and own your home, free and clear. Not only will this give you a better idea of what you can afford financially and put you on a firmer footing, but it will save you thousands in the end! If you do not have the 20% down payment, consider a less expensive home, wait until you can save more money or look to family members or special first-time home buyer programs to help fill the gap.
What type of loan is right for me?
Over the last few years, we have seen a plethora of new loan types with adjustable rates and/or balloon payments. When deciding on financing, I always recommend a simple fixed-rate mortgage. You will be able to lock in your payment amount for the life of the loan. The fine print won’t cost you thousands and you will always know what you owe. Adjustable rate or balloon payment loans can look very attractive during the introductory period, but afterwards can be very unpredictable. This was another issue during the housing crisis because people didn’t fully understand their loans. A rule to follow is if you can’t understand a loan option, then that option isn’t for you. As former President Clinton said, “Keep it simple, stupid”.
Is a 15 year or 30 year mortgage better?
How long do you need to pay off your loan? There are benefits and costs to both. A 15 year loan will typically have a lower rate but higher monthly payments, while the 30 year loan will have a slightly higher rate and lower monthly payments. However, it will take a lot longer to pay off. If you can afford a 15 year loan and know you can make the higher payments, then it is the best option as it can save you thousands of dollars over the life of the loan. But if you aren’t sure about making the higher monthly payment, the 30 year is the better option to avoid high penalties for being late. For more information on what is right for you, check out www.oneunited.com/homeloans.
Is now a good time to refinance?
Yes! Currently this is one of the easier questions to answer as rates are at some of the lowest levels in years. Since rates are so low, it makes for a great time to refinance your house.
Conclusion
Buying a home should be an exciting time in your life. Don’t let fear or nerves distract you from reaching your dream. Buying a home doesn’t have to be scary. One thing we have done at OneUnited is learn from all these concerns and develop the Smart Home Loan. The Smart Home Loan makes financing or refinancing your home simple so you can spend more time thinking about decorating your new house than wasting time worrying about your next payment. I hope this helps and good luck!
OneUnited Bank Website:
www.oneunited.com/homeloans
