When looking for a new home you have two choices, either to buy new or buy used. Homeowners might think that buying new is always the best option but that is not necessarily true. One of the first things to look at is the total amount needed for purchase, which banks call mortgages. Banks refer to mortgages as the total amount borrowed and the amount due on the house.
Homeowners sometimes consider the house payment as separate from the loan. The house payment is essentially a percentage of the total loan, paid every month. The total amount borrowed depends on the sale price of the home. The borrower puts down a percentage of the sale price, usually ten-percent or more and borrows money from a financial institution for the remainder.
New homes are often more expensive than older homes because buildings depreciate in cost over time. Within a few years, the value of your new home might be significantly less than you thought. You have the choice between buying an existing home and adding value to it, or purchasing a newly constructed home. A newly constructed home might have more value now, but lose in the long run.
For example, you purchase a new home valued at $500,000 but the housing market in your area crashes. Within five years, the value of your home drops to $400,000 or less, which is still more than you owe.
Now, consider purchasing a home in the same area for $250,000 and paying an additional $45,000 in renovations. The market crash does not affect you in the same way because you owe less on the home and your home is still worth more than the purchase cost. Before looking at mortgages, consider the total amount needed for the purchase. This should include the cost of any renovations or repairs needed on the house.
Do not sign the paperwork before speaking to a realtor. For major repairs, such as a new roof or foundation repairs, it is the owner’s responsibility. The realtor can negotiate for a lower cost based on those repairs, or request that buyers pay for the repairs before the sale. If the homeowner pays, it reduces the amount of your mortgage.
Mortgages typically come in ten, twenty, or thirty-year options. Thirty-year mortgages take longer to pay back, but your monthly payments are smaller.
The danger involves borrowing more money than you can afford and spreading the payments out over time. Every time you borrow money, it appears on your credit report. Making a late payment on your mortgage, or missing a payment creates a negative mark on your credit report. You also risk losing your home due to back payments owed or missing payments.
Borrowing a larger amount for your home reduces the chances of borrowing additional funds in the future. The lender looks at any high mortgages on your credit report and determines that you are a risk. The bank will not loan money to those with a high debt-to-income ratio. Borrowing more money than you need makes it difficult to purchase a vehicle or other item later.