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Buying a Home

Buying a home can be a great investment, but it is an emotional and financial decision that requires a lot of thought and preparation. If you miss payments on your home loan, your credit report will suffer, and you may lose your home or have to file for bankruptcy. The information in this section can help you avoid these problems by making smart home-buying decisions.

Why buy a home?
Buying a home can be a good long-term investment if you buy at the right time for you. You may be ready to buy a home if:

  • You’re financially secure
  • You plan to live there for several years or more 
  • You’re willing to put time and money into home improvements  

How much can you afford?
Generally a bank will give you a loan so that your monthly payments are about 28 percent of your monthly gross income.  However, it’s not always in your best interest to take out your maximum loan amount. You need to be aware of and comfortable with the amount you will be paying.  

Though it may not seem like it at the time, there’s more to life than your home. Keep in mind that the more money you spend on a mortgage, the less you’ll be able to save for retirement, debt reduction, education and other goals, which is why you should:  

Know the true costs
In deciding how much you can afford, don’t just compare monthly rent to monthly mortgage.  There are many other costs to consider including:  

Upfront costs

  • Down payment
  • Closing costs
  • Appliances, furniture and home decor
  • Emergency fund (For unexpected home-related expenses)  

Long-term costs

  • Cost of home 
  • Interest on your loan
  • Homeowner’s insurance 
  • Property taxes
  • Utilities
  • Repairs and maintenance
  • Private mortgage insurance  

Make sure the price is right
Double check that you can afford your home before you buy it! To do this:

1. Take your new monthly payment and expenses

2. Subtract your current expenses (Rent payment, renter’s insurance, utilities and savings).

3. Save the difference toward your down payment.

4. If you have trouble putting away that money each month, you should reconsider taking out such a large loan.

5. If you can save that much money, you’re in good shape to buy a home, and you’ve on your way to saving a solid down payment.  

Secure a low interest rate
By securing low interest rates on your mortgage loan, you can save a lot of money in the long run.  

For example: If you take out a $100,000 loan for 30 years at a 6 percent APR, you will pay $599.55 per month.  At 8 percent, your payments will be $733.76 per month. Over the life of the loan, that will add up to $48,315.60, nearly half the amount of the original loan.  

Make the right down payment
The larger your down payment, the smaller your monthly payments and the less money you’ll pay on interest in the long run. You may be able to get a mortgage loan without a down payment or with a very small down payment, but you’d probably have to pay higher interest rates and monthly payments. If you can put 20 percent down, you can avoid paying for private mortgage insurance as well.  

To see how long it will take you to save the down payment you want, use our:            

Goal Savings Planner >>>

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Find the right mortgage
A mortgage is a lien (claim against your property) on your home to assure repayment of the debt owed to your lender.  Mortgage payments have two components:  principal and interest.  In the early years of a long mortgage, you’ll typically pay more interest than principal.   

Types of mortgages
Though there are many variations, the two main types of mortgages are fixed and adjustable rate mortgages (ARMs). 

  • Fixed mortgages lock in your interest rate for the entire length of your mortgage.
  • ARMs have lower interest rates at first, but after an initial period of time (often three, five, seven or 10 years), they fluctuate with market rates. ARMS can lead to considerable savings. The average length of time that homeowners stay in their home in the United States is just over six years.  

Shop around
Talk to a variety of banks, mortgage lenders and financial institutions to find the mortgage that will be most cost efficient for you. Start by contacting Modern Woodmen Bank!  

Protect your home with insurance
It can be heartbreaking for families to be forced to sell their home after an unexpected death or disability. A home has an emotional value beyond what your mortgage payments cost. As you create your financial plan, purchase enough life and disability insurance to ensure that your family home will be protected.

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