Demystifying Mortgages - America First Credit Union
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DEMYSTIFYING MORTGAGES

If you're ready to make the leap from renting an apartment to owning a home, you're going to need a mortgage. And while this is a very big decision to make, it doesn’t have to be overwhelming. Learning the difference between an adjustable rate and a fixed rate, or how much of your payment goes toward principal versus how much goes to interest will alleviate some of the stress you might have when it comes to home loans.

 

Asking yourself the following four questions will help you determine whether or not you’re ready to own a home:

1. Why do you want to own a home? 

Why is owning a home important to you? Don’t answer with what you think you should answer; be honest with yourself. Are you looking to build equity? Does it just seem like something a successful adult needs to do? Do you see it as an investment? Do you think renting is somehow inferior to owning? Are you just fed up with your landlord? Do you see it as a symbol of your freedom and independence? Do you have a Pinterest board of home renovation ideas you’re dying to try? Do you think it’s something that everyone your age should do?  By simply observing what surfaces when you ask yourself these questions, you’ll get some insight into why you’re contemplating buying a home in the first place.

2. Are you okay with staying put?

To make the most out of buying a home, you need to be in it for at least five to seven years. There’s a reason why short-term home ownership isn’t a thing outside of those real estate flipping TV shows—it’s a great way to lose a lot of money. Your home, like any investment, needs time in order for its value to grow, and growth isn’t guaranteed. By selling your home after only a couple of years, you’re at the mercy of real estate market swings and your home may not have increased in value enough to break even—especially when you factor in closing costs and other additional expenses that go along with buying a home. If the thought of staying in one place for more than one year makes you feel panicky, then it might not be the right time for you to buy.

3. Are you happy?

Stability is key when it comes to buying a home, and so anything that threatens that stability could also potentially cause some major headaches once you’ve signed the mortgage papers. Do you love what you do for a living? Do you have job security? Do you enjoy living in your neck of the woods? Is your personal life stable? 

You don’t want to be in a situation where you purchase a home and then find yourself faced with the need to change things up. A career change, the start or end of a relationship or a sudden onset of wanderlust could all interrupt your plans to stay put and build equity. Of course, life can be unexpected even when you’re happy—but generally speaking, if you’re pleased with where you’re at, dramatic changes won’t be looming around the corner. 

4. Is your savings account up for the challenge?

Have you figured out how much home you can afford, based not only on the monthly mortgage payments, but also on all of the other expenses, such as property taxes, insurance, homeowners association fees, and utilities? Regular monthly expenses aside, home ownership can serve up all sorts of expensive surprises, and you’ll want to make sure your savings account is prepared. The financial responsibility of maintaining a household can take new homeowners by surprise. You’ll also want to beef up your emergency fund so that you have some flexibility and can continue paying your mortgage if you suddenly find yourself with health issues or job troubles. If your savings are healthy, you’ll also want to consider budgeting for moving expenses, furniture, and home upgrades before making the move.

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On the surface, home ownership can seem like a smart and appealing option, especially if your mortgage payments work out to be lower than what you would be paying to rent. However, rushing into a mortgage can set you up for a ton of stress (financial and otherwise). Before you buy, check in with yourself to make sure that you’re well prepared, that the timing is right and that you’re doing it for the right reasons.

 

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