Learn More About Buying and Selling
Get clear answers and expert insights from Davenport Realty to help you navigate buying, selling, and investing with confidence.
Find Answers to Common Questions
How Do I Know If I'm Ready to Buy a Home?
You can find out by asking yourself some questions: Do I have a steady source of income (usually a job)? Have I been employed on a regular basis for the last 2-3 years? Is my current income reliable? Do I have a good record of paying my bills? Do I have few outstanding long-term debts, like car payments? Do I have money saved for a down payment? Do I have the ability to pay a mortgage every month, plus additional costs? If you can answer “yes” to these questions, you are probably ready to buy your own home.
How Do I Begin the Process of Buying a Home?
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How Does Purchasing a Home Compare with Renting?
The two don’t really compare at all. The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits, and protect yourself against rent increases. Also, you may not be free to decorate without permission and may be at the mercy of the landlord for maintenance. Owning a home has many benefits. When you make a mortgage payment, you are building equity. And that’s an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities – like insurance, real estate taxes, and upkeep – which can be substantial. But given the freedom, stability, and security of owning your own home, it is worth it.
How Does the Lender Decide the Maximum Loan Amount I Can Afford?
The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the FHA, your monthly mortgage payments should not be more than 29% of gross income. While the mortgage payment, combined with non-housing expenses should total no more than 41% of gross income. The lender also considers cash available for down payment and closing costs and credit history, when determining your maximum loan amount.
What Are Home Warranties and Should I Consider One?
Home warranties offer you protection for a specific period of time, normally one year, against potentially costly problems, like unexpected repairs on appliances or home systems, which are not covered by homeowner’s insurance. Warranties are becoming more popular because they offer protection during the time immediately following the purchase of a home, a time when many people find themselves cash strapped.
Is an Older Home a Better Value than a New One?
There isn’t a definitive answer to this question. You should look at each home for its individual characteristics. Generally, older homes may be in more established neighborhoods, offer more ambiance, and have lower property tax rates. People who buy older homes shouldn’t mind maintaining their home and making some repairs. Newer homes tend to use more modern architecture and mechanical systems, are usually easier to maintain, and may be more energy-efficient. People who buy new homes often don’t want to worry initially about upkeep and repairs.
Do I Really Need Homeowner's Insurance?
Yes. A paid homeowner’s insurance policy (or a paid receipt on one) is required at closing, so arrangements will have to be made within 10 days of an accepted contract to know the cost of the policy. Plus, involving the insurance agent early in the home buying process can save you money. Insurance agents are a great resource for information on home safety and they can give tips on how to keep insurance premiums low.
What Steps Could I Take to Lower My Homeowner's Insurance Costs?
Be sure to shop around among several insurance companies. Also, consider the cost of insurance when you look at homes. Newer homes and homes constructed with materials like brick tend to have lower premiums. Think about avoiding areas prone to natural disasters, like flooding. Other ways to lower insurance costs include insuring your home and car(s) with the same company, increasing home security, and seeking group coverage through alumni or business associations. Insurance costs are always lowered by raising your deductibles, but this exposes you to a higher out-of-pocket cost if you have to file a claim.
What Is a Mortgage?
Generally speaking, a mortgage is a loan obtained to purchase real estate. The mortgage itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two components: principal and interest.
What Types of Loans Are Available and What Are the Advantages of Each?
Fixed Rate Mortgages: Payments remain the same for the life of the loan. Types include 15-year and 30-year. Advantages: Predictable, housing cost remains unaffected by interest rate changes and inflation. Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates. Types include: Balloon Mortgage – offers very low rates for an initial period of time (usually 5, 7 or 10 years); when time has elapsed, the balance is due or refinanced. Two-step Mortgage – interest rate adjusts only once and remains the same for the life of the loan.
How Large of a Down Payment Do I Need to Purchase a Home?
There are mortgage options now available that only require a down payment of 5% or less of the purchase price. But the larger your down payment, the less you have to borrow, and the more equity you’ll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you’ll also need money for closing costs, moving expenses, and possibly repairs and decorating. Talk to your lender or Real Estate Agent about loans that offer 0% out of pocket to close.
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