This is the 1st entry in our Home Buying series. There are links to the other entries at the end of this article.
Whether you’re thinking about buying your first home or are a happy renter it can pay to know the basics of the home buying process. For most people, it’s the most significant purchase they’ll make.
We’ll start with the basics. Almost everyone buying a home will work with a real estate agent to help them find a house they’re interested in, make an offer, and hopefully close (actually buy) the house. The agent is there because they know local real estate laws, they know the market, they’ll set up appointments for you to view houses you’re interested in, and can recommend other services or experts you’ll need at later stages in the process. They’re generally paid by commission, i.e. a portion of the sale price that is usually split between the seller’s agent and the buyer’s agent (your real estate agent.)
Unless you’re sitting on several hundred thousand dollars in cash, you’ll need a mortgage to buy a home. A mortgage is simply a loan made to you solely for the purpose of buying a house. You can shop around for the best mortgage for you; taking into consideration things like fixed or variable interest rate, length of the loan (30 years is pretty standard) and most importantly what interest rate you qualify for. The lower the interest rate, the lower your monthly mortgage payments will be.
Your mortgage probably won’t be for the full value of the home you’re buying. That’s where the down payment comes in. The down payment is cash you pay up front, at the time of the sale (or the “closing” in mortgage terms) and is usually referred to in terms of a percentage of the home price. The more you put down in a down payment, the less you’re borrowing with the mortgage. Consider a $250,000 home. If you put down 20% that’s $50,000. That means you’ll only be borrowing $200,000 from the mortgage company. But if you put down 5% that’s only $12,500 which means you’ll be borrowing $237,500. The less you put down the larger your monthly payments will be since you’re paying back more money.
There’s plenty more to home buying that we’ve covered in other articles. Keep reading at the links below!
Home Buying #2
How to prepare your finances before it’s time to buy.
Home Buying #3
Understanding the different stages of the mortgage process.