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Basics of Buying a House

how to figure out mortgage payments

Instead of making you read this whole website just to get the general idea of how the process works, here's a short summary of everything that follows.

Should I buy or keep renting?

In most cases it's better to buy instead of rent, and to buy as soon as you can afford to do so. The only exceptions are for people who have very low rent, or who plan on moving in a few years. So the first thing you need to do is to figure out whether buying is even a good idea for your situation. My rent vs. buy calculator will help you do that very thing. Unlike many calculators of this type, I've already filled in all the blanks with sample values, all of it realistic. You need change only a few items (current rent, home price, and mortgage rate) to get a good idea of whether renting is better than buying.

Most people think the benefit in buying is to "stop throwing your money away on rent," but in fact the equity you build from buying is mostly offset by the money you will "throw way" on taxes, insurance, maintenance, and mortgage interest, which renters don't pay. The real benefit from buying is that you freeze your monthly payment for 15 to 30 years. and then you stop paying it altogether.

The Basics

You don't pay cash when you buy a house. If you had to do that then nobody could afford a home. Instead you make a small down payment in cash (3.5 to 20% of the sale price), and you get a

loan from a bank called a mortgage for the rest. You make payments on this loan every month for 15 or 30 years, and then you get to stop making payments. (If you're rich and don't need a loan, congratulations. You can skip every part of this guide relating to loans.)

You used to be able to get zero-down payment loans, but after the lending crisis (caused by banks giving out easy loans like candy), those are pretty rare. In 2006, a whopping 43% of first-time homebuyers put no money down ( USA Today. 2006). but those days are gone. Veterans with good credit scores can still get no-down-payment loans, but that's about it.

The higher the down payment you can make, the easier it is to get a loan, and the lower the interest rate is, and the lower the monthly payment is.

What kind of home can I afford?

In general you can afford a home worth about three times your annual household income. If your combined income is $60,000, you could afford a $180,000 house.

If it looks like you can't afford a home then consider getting a bigger home than you need and renting out part of it. This is especially applicable to single people, where the smallest home they can find might be too big for their needs. Later as your income increases and you can afford to live without renters you can do so, and you'll come out ahead by having bought sooner rather than later. Anyway, here's how the costs compare when you rent out part of a home you buy:

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