If you're like most Americans, buying a home is one of the biggest purchases you will ever make. While you'll want to talk to a real estate agent and a loan officer before buying a house, it doesn't hurt to do some research on your own before getting to that point. These five online tools will help you figure out what you need, and how much money you are going to spend.
Rent vs Buy Calculator
Deciding whether to rent or buy your next home is usually your first big decision in the home search process. Typically rent is less expensive than a mortgage payment, but for those people who intent to stay in the same home for more than a few years, the appreciation in the value of your home will outweigh the savings you'll get by renting a property. Buying becomes much more attractive in these cases and especially if the location where you want to buy starts to grow and improve. Use a rent vs buying calculator tool to see which is best for you.
Home Affordability Calculator
Once you know buying a home is the right choice, it's important to figure out how much house you can afford. Doing so will give you an idea of the maximum you can spend, without actually holding you to that number. You'll basically have a range that you can afford and you can shop within that range and not waste your time looking at homes that are above your maximum limit.
Loan Pre-Qualification Estimator
Knowing how much you can realistically afford based on your income is only part of the picture when it comes to buying a home. If you are going to be making the purchase with a home loan, there's a pre-qualification process you'll be going through before making your first offer. Pre-qualification takes into account your credit history, employment history, income, and more.
For most people looking to purchase a home, the process of getting pre-qualified takes less than a day, mainly because the pre-qualification process allows you to self-report all the figures. Pre-approval for a loan works in much the same way as pre-qualification, except the bank will verify your income, credit, and other information.
Tax Savings Calculator
As a homeowner, you can deduct the amount of interest you pay on your home loan from your federal income taxes. This is a benefit that most affordability calculators usually do not take into account, but it can save you several hundreds and sometimes thousands of dollars a year. Depending on your tax bracket, the mortgage interest deduction can effectively gain you an annual rebate of approximately 20-30% of what you paid in interest. Use a tax savings calculator to figure out what this number is for you.
Determining Loan Terms
While the 30-year mortgage has been the most common type of loan for the past few decades, shorter loan terms do have a significant advantage when it comes to interest paid. If you can afford it, getting a 15-year mortgage can save you tens of thousands of dollars if you keep your home the full 15 years. Even if you sell before your home is paid off, you will have still saved a considerable amount of money. The trade-off is that your monthly payments will be higher, but much more of your monthly payments will be going to your principal balance. Loan terms are a very personal decision based on a borrower's income, goals and flexibility. It's best to do some research and then make a decision that makes most sense for you.
Buying a home is a big step. Using the tools available to you in order to fully understand the process and the financial commitment buying a home requires is the best way to prepare as you begin down the road of home ownership.