Home Buying Considerations
Becoming a home buyer offers many advantages. It provides greater control of living arrangements, can help increase net worth, and provide a sense of community.
Mortgage interest rates
According to Zillow, the median home value in Hillsborough County is currently $243,687. https://www.zillow.com/hillsborough-county-fl/home-values/
The average consumer doesn’t have enough money to make a $243,000 cash purchase of a home. A mortgage allows you to buy now and pay over time.
Mortgage interest rates are at historically low levels, so many people are considering whether now is the time to purchase a home. According to Mortgage Calculator, the current mortgage rate in Florida for a 30-year fixed loan is 3.056%. https://www.mortgagecalculator.org/mortgage-rates/florida.php
To show how a much a mortgage loan payment might be, we can look at the following example:
A family of four is looking to purchase a home and can make a down payment of $25,000. Below are the details of the loan:
- Cost of house is $250,000
- Loan amount is $225,000: $250,000 minus $25,000
- Loan term is 30 years and fixed
- Credit score is good
- Interest rate is 3.256%
Using the mortgage calculator on Zillow, the estimated monthly payment for this loan would be $980 for principal and interest. In addition the homeowner would need to pay taxes and the cost of homeowners insurance. The Zillow calculator https://www.zillow.com/mortgage-calculator/ will provide estimates but actual cost may be different.
Principal, interest, taxes, and insurance (PITI)
If it is a fixed rate loan (most common), principal and interest will not change through the life of the loan. However, taxes and insurance can still increase over time. At the beginning of the loan, monthly payments are attributed at higher amounts to interest. However, each month the interest payments decrease and principal increases due to the amortization or allocation of payment to the loan. The amortization of the loan does not affect property taxes and insurance payments on the loan, which still can increase over time.
Mortgage loan terms
The mortgage loan terms include the loan term, interest rate type, and loan type.
- Loan term is the amount of years you have to pay off the loan (such as 10,15, 20, or 30 years).
- Interest rate types can be fixed or adjustable. With fixed, the total of principal and interest monthly payments remain the same. With adjustable, the monthly principal and interest payments can increase or decrease.
- Loan types available are conventional loans, Federal Housing Administration loans, and special program loans.
The loan term affects the total cost of the loan and interest rate, with shorter terms reducing the total cost and interest rate. Fixed interest rates offer more certainty making many people prefer this type over adjustable interest rates. The loan types vary depending on the buyer’s qualifications and whether a governmental or nonprofit organization is involved in the process of securing the loan.
Closing costs are costs associated with the real estate closure of the home, and are not included in the down payment. They can vary depending on the property, the location, and the loan terms. Closing costs can be paid by either the buyer or seller, and might include the application fee, prepaid interest, property tax, transfer of title tax, realtor commission, etc.
Factors to consider
The factors to consider are both external and personal. The external factors include the median value of homes in your area, current mortgage interest rates, the loan terms available, and all necessary closing costs. The personal factors to consider are credit score, yearly income available for house payments, and the amount of down payment readily available to reduce amount needed for finance. Other factors include assessing what life will look like down the road with this new home. It is important to not only consider whether the decision to buy a home would benefit you financially, but also if it will provide you with a sense of fulfillment and stability in the coming years.
For more information regarding loan options visit https://www.consumerfinance.gov/owning-a-home/loan-options/