If you’re buying your first home, it can be exciting, but it can be overwhelming, too. Don’t stress just yet! If you know the right things to do to prepare, you can purchase your first home in a way that benefits you, your family and your pocketbook.
I spoke with Minnie Minor, a Financial Consultant with the Oink Group Inc., an African-American financial services firm. Minor shared five things you should know before purchasing your first home to make sure it’s the right investment.
BlackDoctor.org: What is the difference between an interest rate and APR?
Minnie: People should know the difference between an APR and an interest rate. Here it is in simple terms. The mortgage interest rate is the cost a homeowner pays each year to borrow money for a mortgage and is expressed as a percentage rate.
However, an APR, or an annual percentage rate, reflects the mortgage interest rate and other charges. When a person takes out a mortgage, the APR reflects not just the interest rate, but also the points, mortgage broker fees, and other expenses you must pay to get the loan. This is why the APR is usually higher than your interest rate.
BlackDoctor.org: What should a first-time homebuyer do before purchasing a home?
Minnie: Homeowners should have a game plan when buying a home. They should ask the following questions: Is it a short or long-term investment? Can they cover the mortgage comfortably with one income if a couple makes the purchase? Can you afford your mortgage with one paycheck? Also, as you go through the process, validate everything you are told. This includes information about the seller, appraiser, real estate agent, lawyer and the bank.
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BlackDoctor.org: What term of mortgage should a homebuyer choose?
Minnie: I encourage my clients to pick the 15-year fixed loan option if they can afford the payment. Buying a home is an investment, but it’s also debt. The quicker you can pay off the loan, the better.
Sometimes a customer may opt for an Adjustable Rate Mortgage (ARM) if they plan to purchase a home for a shorter period and it offers a reasonable interest rate. But, if you intend to stay in the home for at least 5 years or more, my suggestion would be to pick the 15-year fixed loan option.
BlackDoctor.org: What can a first-time homebuyer do to prepare financially for the cost of a home?
Minnie: Create a budget. When you rent, you have only one payment and perhaps a few utility bills and renter’s insurance. When you purchase a home, it’s different.
There are additional costs. Include not only your mortgage but other expenses you incur when you