If you’re planning to buy a home, you probably have good reasons for your decision. It may be that you share the feeling that owning your own home is a key part of the American dream. But there are also financial issues involved in buying real estate that you need to consider as well.
From one perspective, a home is an investment, maybe the single largest one you’ll ever make. Like certain other investments, real estate has the potential to increase in value over the years, so that you can sell it for more than you paid. It can also lose value, sometimes dramatically.
But unlike investing in equities such as stock or mutual funds, which you buy as a way to achieve your financial goals, most people consider owning a home as an end in itself.
Reasons to Buy
There are strong emotional reasons for buying a home — and potentially stronger financial reasons. Owning can help you feel grounded, and part of a community. It can provide a sense of accomplishment and a place to build family traditions. Often, you have more space than you would in a rental unit that costs the same amount of money. And owning can save you money.
How Home Buying Works
There are usually three distinct phases in buying a home: accumulating the down payment, finding a mortgage, and building your equity by paying off the mortgage loan.
1. Generally you need a down payment of at least 10% and sometimes as much as 20% of the purchase price available in cash in order to buy. However, if you don’t have enough for a down payment, you can look into private mortgage insurance (PMI) to cover the remaining amount.
2. Check your credit report to be sure there’s no negative information that may make it difficult to borrow. Everyone is entitled to one free credit report each year from each of the three major credit reporting agencies. To access your report go to annualcreditreport.com and follow the directions. It may be a good idea to ask for one report at a time, and return to the site four months later to access a report from a different agency. This way you’ll know if something negative shows up on your credit history during the time you’re looking for a home, and you’ll have time to get it resolved.
3. When you are ready to look for a home, you’ll want to compare options for the mortgage. A mortgage is a long-term loan that provides the money you need to buy the home. You pay the loan back, usually in monthly installments over a 10- to 30-year period.
4. When you’ve arranged your mortgage and bought your home, you gradually build your equity, or ownership, by paying off the mortgage. In most cases your monthly payment will also include enough to cover the real estate taxes and insurance on the property. In fact, you may run across the acronym PITI to describe your payment, representing principal, interest, taxes, and insurance.
Looking for more information? Noble Credit Union offers a variety of educational opportunities on their website including financial articles, interactive calculators, and virtual coaches that will help you get set to owning your next home.
Noble Credit Union, voted one of the best credit unions in California, offers offer members full access to a wide range of financial education and services, including low rate auto loans, MyRewards Visa credit card, mortgage and equity loans, online and mobile banking, and more. For more information about membership at Noble Credit Union, call (559) 252-5000 or visit NobleCU.com.