Going from Renters to Home Owners
There comes a time when it makes sense to go from renting your place to joining the ranks of home owners. Creating a budget is oftentimes the first place most renters begin when thinking about becoming home owners, but there are many other factors to consider.
Listed below are Homes Re-Imagined’s “Things to Know” as you prepare to go from home renter to home owner.
Understanding Your Monthly Mortgage
When calculating your monthly mortgage there are four, sometimes five, things which make up your monthly payment: principal, interest, taxes, insurance, and sometimes HOA (homeowner association) fees. Your principal is what you bought the home for while the interest is the fee you will be paying for borrowing the money. You can use a mortgage calculator to figure out how much your principal and interest will be each month. Next you will want to add in your property taxes for the home – this is usually about one percent of the value of your home but can change depending on your area. One of the last things you will be adding is your home insurance. Before purchasing your home you need to have homeowners insurance that will cover the cost of rebuilding your home in case of an emergency. Lastly, if you are buying a condo or in an apartment building you may need to pay monthly HOA fees to cover maintenance.
Know Your Home owners Tax Benefits
When filing your taxes it is important to understand that your mortgage interest and property taxes can be claimed on your taxes. This means you could pay as much as you are now with renting because your taxable income will be lowered on your taxes. Just remember you may not see this difference each month but it will make a difference on your taxes.
Comparing Renting and Owning
Sometimes owning a home compared to renting a home of very similar size and location can be comparable in prices. You should not only look into rent and mortgage costs but also consider the money you would make back when owning a home on your taxes.
Understanding Down Payments
When making the step from a renter to a home owner it is important to understand how a mortgage is calculated. It is highly recommended that you put down as large a down payment as you can afford (with at least 20% down) to ensure that you not only pay less in interest but also pay less each month as you will be borrowing less. You also need to consider whether a 15 or 30 year mortgage works better for you.
Making Sure Your Credit is Ready
Credit scores are a very important factor in ensuring that you will get the lowest mortgage rate. Before considering buying a home make sure that your credit is in good standing. If you need to improve your credit make sure you are making on-time payments and getting any credit card balances reduced
Taking the step from home renter to home owner can be a big adjustment. Before making this move you need to consider the various factors that impact your mortgage, how your tax deductions will work for you and how your credit score will influence your ability to secure the loan.