First time buyers or recently new homeowners may feel like there is so much that must be done to set the stage for that all important first home purchase. Just the thought of it can be overwhelming. The real secret is to start modestly and keep making those home payments over time; it all adds up eventually.
As you gain equity what do you do? Stay? Refinance? Sell and move to a larger home? What is the right choice for you? At different times in life you are going to view home ownership through different lenses and with different sets of needs. The following simplification is intended to give a basic roadmap of the needs of homeowners at different ages and levels of need in life.
Ownership Rules For Youth And First Time Buyers
If you don’t already have equity in real estate or cash in the bank then it might be worth looking into the different ways to leverage what cash and assets that you do have. Fortunately, there’s a lot of help available. If you have reasonably good credit and income you might qualify for a government insured loan that will get your foot in the real estate front door.
Your first home will likely be more of a stretch financially than later purchases. Firstly, you don’t have that much cash presumably and if you don’t have enough cash to make a twenty percent deposit or higher you will have a mortgage insurance premium as part of your monthly payment. Government backed loans such as those offered by the FHA and VA help you get into home ownership quickly.
Different Rules For The Owner With Equity
When you have gained enough equity under your belt, you begin to have choices. However, those choices must be balanced against the cost of change. For the former first time buyer this is the time to choose between refinancing and moving.
If you are settled and happy with the home that you’ve built equity in it may still be time to determine if you can save some expense by refinancing at a higher appraisal. This will help if you have been paying mortgage insurance premiums or you want to change the term of the loan.
Larger deposits mean lower payments. Faster payments mean lower payments. Fifteen-year terms get a preferred rate compared to thirty-year mortgage terms. The difference in the monthly repayments can be surprisingly small as shorter terms benefit from less interest compounding.
Ownership In The Sunset Years
Having some leverage applied to your home may not be a bad thing. If you have a small home loan, say less than 50% of the value of your home there is an advantage in the interest deduction for tax purposes. Lenders often manage the property tax issues by impounding an estimated monthly amount and using it to pay the bill as it comes due. With this taken care of as part of the monthly payment it is one less thing to have to worry about.
The laws against discrimination are clear that you cannot be refused a loan because of your age. Holding a loan balance may be preferable to a so-called reverse mortgage, where the value of your home goes to the lender when you pass away.
Speak with your realtor or financial advisor about the best plan for your circumstances and your point in life. You may find as many have before that, regardless of your starting point, there is a plan that will suit your life and times. The earlier that you start the more opportunity you have to move up the property ladder and to enjoy your home throughout your life. A little planning and saving in early adult life can go a long way to creating your lifestyle dream come true in the long-term.