Planning to buy a home
Buying a home is the American dream. If you are one of the millions of Americans who
dreams of owning a home, you can make the dream become reality. The trick is careful
planning, setting goals, and understanding the real costs of ownership. There are
many good reasons to buy a home—it’s more than having a "castle to call your own."
Despite the possible drawbacks of mortgage costs, decreased mobility, and upkeep, home
ownership has a lot to offer:
Built-in savings
Mortgage payments aren’t like rent. Those monthly payments can actually pay yourself instead of a landlord. Over time, a home will have more value than the remaining payments—this is called equity, which can be borrowed against or cashed out when you sell the home.
Unlike almost all other large purchases, homes do not usually depreciate. The appreciation of homes can be "money in the bank" for determining your financial worth.
Community ownership
True, it’s a place to call your own, but home ownership provides a sense of stability and permanence. Home ownership also comes with a certain amount of involvement in the community: whether the owner becomes involved in school district concerns, city politics, quality of life in the community, or having a yard that fits in with the neighborhood.
Financial advantage
Property and homes are two of the best routes to stable investing. Home values almost always go up, and they give a sense of value to the family. Homes are one of the greatest legacies that we can leave our children.
Fixed housing costs
Rent can go up year after year, but a fixed mortgage can actually decrease your monthly housing costs as time goes on. In other words, a fixed rate mortgage will stay the same throughout the mortgage period. Meanwhile, inflation will inevitably increase—meaning that the real cost of your mortgage payments will decrease. Try our Rent vs. Buy calculator to see which option is more cost-effective for you.
Tax benefits
Owing a home brings tax advantages that aren’t available to renters. The interest you pay on a home mortgage is usually deductible on your Federal income taxes. Talk to an accountant to find out more about local tax advantages.
How can I afford to buy a home?
You may have examined the costs of moving from renting toward owning a home. Some of the expenses to consider are as follows: mortgage costs, taxes, insurance, moving, furnishing and equipping the house, repairs, and on-going maintenance. These costs may be much more than your current rent, so carefully review your desire to own a home and your ability to meet the realistic goals that will take you towards home ownership. The best way to start is to develop a budget.
After you complete your budget, you will notice that some expenses are fixed and some expenses are discretionary (those costs which are flexible or up to your discretion). You may want to reduce or change your discretionary spending. You will have to decide how important home ownership is to you. Are you willing to forego certain purchases or delay certain discretionary expenses for a while? You should also try out the cost of your future home ownership—set aside the money that you think you are willing to spend above what you currently pay each month for housing. Try our mortgage calculator to help you get a good idea of what you'll be paying each month.
You should not buy a home if you are not confident you will be able to afford the costs that come with home ownership. If you move into a home which is above your ability to maintain, you could lose your home.
What are the costs of home ownership?
What is my borrowing power?
A common rule of thumb says you can afford a house that costs one and a half times your annual gross income. If you and your spouse have a total income of $50,000 the general rule would be that you shouldn’t borrow more than $75,000 for your home. However, this is only a rule of thumb. When you apply for a mortgage loan, your credit history, your expenses, your debts, and your down payment, will all come into play.
Lenders use two guidelines to determine an applicant’s eligible mortgage:
- Monthly housing costs (mortgage, property taxes, insurance, or other fees) should not total more than 33 percent of your pre-tax monthly income.
- These monthly housing costs, plus your long-term debt obligations, should not total more than 41 percent of your pre-tax income.
The rule here is that a family should not spend more than a third of their income on housing costs and no more than a two-fifths of their income on total indebtedness. This is a good rule, because average borrowers won’t need as much income to qualify for a mortgage; however, many people need to work on their debts before they can qualify for home lending.
If you're a first-time home buyer, check out this article for some extra tips that will make your purchase that much easier.
How can Northwest Community help?
In addition to shopping around to get you the best mortgage, the credit union can help you with everything from setting up an effective savings program to creating a financial plan that will carry you from debt consolidation towards a secure retirement. Not only is Northwest Community Credit Union a mortgage lender, but we also provide home equity loans, consumer loans, and programs to help alleviate the effort to come up with a down payment. Call or e-Mail us to start yourself on a plan towards home ownership.
Get a great mortgage program through NWCU
It’s a great time to buy a home, because some new low down payment programs have the best rates we’ve ever seen. We have several mortgage programs that will let you finance 97 percent of your purchase price (with incredibly low interest rates and payments). Before these programs, people only got the best rates if they put down 5 percent or more for the down payment.
The new programs are also very lenient about the source of the 3 percent down payment. The down payment can come from saved funds, an unsecured employer loan, a government grant, a gift, money borrowed on a secured loan, or a loan from a non-profit organization like Northwest Community. There are some requirements for the home loan, so talk to us about the details.
Requirements for the mortgage program include:
- The house must pass an appraiser’s inspection
- The maximum loan amount is $240,000
- Repayment terms from 10 to 30 years available, with a fixed-rate APR determined at time of signing the application or "rate lock"
Qualifications for NWCU loan approvals include the following:
- You must have two months worth of payments on deposit in a NWCU account—such funds must come from saved money (that is, not borrowed)
- You should have an above-average credit rating and a history of smart debt management
- You should be employed for two or more years with the same employer, or in the same field of work
We also have programs available for investment properties and "jumbo" loans (that is, loans which are greater than $240,000). Jumbo loans have different qualifications and program requirements, so talk to us for further details.