How to Buy a House
Before You Buy
Your RCM agent will have all the information on what homes are selling for in your desired area. Gather data on what meets your criteria.
A good down payment is 15-20% of the final cost. The less you put down, the higher the interest rate you will probably receive, and the longer your loan may be. The down payment is the only piece of your new house that you own. Your lienholder actually owns the rest.
Know what you can afford
The internet can be a great resource while you research how to buy a house. Bankrate.com has a calculator that will help you determine what you can afford:Bankrate Calculator
You should aim for a home that is around 2.5 times your normal gross salary. Make sure to adjust this amount if you have significant accumulated debt or other pending financial issues. Your house payments really shouldn’t be much more than one week’s paycheck, and they should definitely be less than what you make in two weeks. The percentage of your anticipated down payment also comes into play here.
Line Up The Dollars
If you managed to up with a down payment of 20% for your prospective home, your lienholder would be ecstatic. With an even greater down payment, you can get an even bigger loan. And anything under 20%? You’ll need to get creative with your willingness to pay a long-term or higher-interest loan.
Fannie Mae, Freddie Mac, the FHA (Federal Housing Administration), and the Department of Veterans Affairs cater to buyers who can only make low down payments. You might be able to pay as little as 3-5 percent for your loan. For more information, check out Fanniemae.com or Freddiemac.com.
Caution: Down payments of less than 20% might incur PMI (private mortgage insurance). This protects the bank if you fail to make your payments. PMI adds around 0.5% of the total loan amount to your mortgage payments each year. So, financing $400,000 will make your PMI around $2,000 annually.
You also need money for fees and closing costs. Appraisal fees, loan fees, attorney fees, inspection fees, and title search fees usually come to around 5% of the total mortgage amount.
First-time homebuyers can withdraw up to $10,000 without penalty from an “Individual Retirement Account,” if you happen to have one. But you must pay taxes on whatever you withdraw. You can also receive a cash gift of up to $13,000 a year (the limit for 2009) from each of your parents without gift tax, which would be paid by the giver.