As a first-time homebuyer, it can be tough knowing what you don’t know. There are so many aspects of homeownership to consider and so many costs and factors involved in the process of finding and buying a home that it’s easy to miss something along the way as a new buyer.
Since it wasn’t that long ago that my wife and I went through our own first-time home buying adventure, the experience is still relatively fresh in our minds and we remember what it was like. Therefore, when I was approached by a family member asking for assistance in preparing to buy a first home, I was more than willing to help but in a way that I hoped was not too intrusive.
Providing info but not advice
It’s nice to have input on the home-buying process, but not so much that it muddies the waters on the type of home you want or so that you end up buying a home that fits someone else better than you. Therefore, when this family member asked for help, that’s what I was willing to provide. Information regarding homeownership, the types of work involved in owning a home, and how the finances of a mortgage work, what loan amortization is, and what closing costs are was the type of information that I was willing to provide. My opinions about homeownership, impacts upon a family’s finances, location, type of home, and more were things I tried to keep to myself.
The process of getting a loan
The process of getting approved or pre-approved for a loan can be a long, and at times, frustrating one. From providing previous years’ tax information, and handing over retirement benefits and other investment information, to having a credit check and sending in current as well as past pay stubs, obtaining a mortgage approval can be a time consuming process. I hoped that by explaining the steps and timeframes involved, my family member would be better prepared for the trials and tribulations involved in the early stages of buying a home.
Mortgage options and costs
Obtaining a loan can be a costly process, sometimes adding additional thousands of dollars in fees to the eventual cost of homeownership, but the interest involved in paying off such a loan can be one of the greatest costs involved in owning a home.
My wife and I were able to reduce our interest obligations by thousands of dollars when we purchased our first home by taking on a 15 versus a 30 year mortgage. To help my family member understand just how financially beneficial a shorter-term mortgage can be due to the typically lower associated interest rate and shorter payoff time, we ran various amount and interest rate combinations for 15 and 30-year loans with online mortgage calculators to see the difference in cost that often equates to tens or even hundreds of thousands of dollars over the course of the loan.
We also looked at amortization rates for these mortgages to see payment totals and how these amounts were broken down between interest and principal over the course of time.
Closing costs – both on the buying and selling side – can add up to thousands of dollars when buying a home, and they can take a new homeowner by surprise. To help this family member better understand not only the types of costs involved with closing on a home, but the amounts as well, we went over previous settlement statements from my own home purchases so that we could discuss potential costs and their amounts ahead of time so they won’t come as a surprise as some of them did to us when my wife and I purchased our first home.
Seeing the related expenses for items like the appraisal, processing of the mortgage, mortgage application, title company, recording fees, postage, hazard insurance, prepaid interest, credit report, real estate attorney, and more could provide a better understanding of just how much closing costs (in our area) will add to the price of home ownership.
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The author is not a licensed financial, mortgage or real estate professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.