No matter what stage of life you’re at, buying a Southern Maryland home poses financial considerations and challenges that must be overcome. Young buyers at the start of their careers may lack financial capital, while older buys have retirement savings and other financial demands that they must consider. Retired buyers have a smaller monthly income than those who are still working.
Southern Maryland buyers at each phase of life will need their own approach to mortgage strategy. Use these tips to help you make the right decision when it comes to your mortgage.
When you’re planning your mortgage, there are three basic principles to consider.
Closing cash: Nearly every mortgage requires a down payment that ranges between 3 to 20 percent of the property’s price. Closing costs are also required in any Southern Maryland home purchase; these range between 1 to 3 percent of the home price. Closing costs include escrow fees, taxes, etc.
Monthly outgoings: Your mortgage payment won’t be the only bill you’ll have to pay each month as a homeowner. You’ll also have to pay for insurance, property taxes, utilities and maintenance, and home repair costs.
Equity: Your home’s equity is the percentage of the property’s value that is not finance. The equity of your property increases when the property value of your home goes up and when you pay down the mortgage loan.
Depending on your stage of life, these three factors will have a different effect on your mortgage planning.
Buyers who are early in their careers likely have less savings and access to funds for a down payment. A down payment of 20 percent on a property results in a smaller monthly payment, but this is not often an option for first-time home buyers. A 3 percent down payment is more feasible and can help first-time buyers make the first step in home ownership.
For example, on a Southern Maryland home that costs $250,000, a 3 percent down payment is $7,500; a 20 percent down payment would be $50,000. The difference is in the monthly mortgage payment. A $7,500 down payment on a 3.5 percent 30-year fixed rate mortgage would result in monthly payments of around $1,600, including of mortgage, taxes, and insurance. A down payment of $50,000 would result in monthly costs of around $1,203. A 3 percent down payment has monthly costs that are $397 more expensive but requires $42,500 less in upfront money. Closing costs will also need to be considered on top of a down payment, and on a $250,000 property they would range from $2,500 to $7,500.
Mid-career buyers are often worried about the monthly costs of the home. They are also likely saving for retirement and college tuition for their children.
Using the same example of a home that costs $250,000, a mid-career buyer is left with same decision: Pay an extra $397 a month and save $42,500 in upfront costs or pay a $50,000 initial down payment and have lower monthly costs.
By going for the lower down payment the buyer would have monthly costs of around $1,600, and after tax, deductibles would have a monthly cost of around $1,312. Potential buyers can then compare the monthly cost of $1,312 with the cost of similar rental properties in the area.
By comparing the rent vs. buy scenarios, mid-career buyers can evaluate whether buying a property offers the opportunity to conserve cash and increase assets. Financial and mortgage advisers can help you find the right balance between monthly costs and maintaining cash liquidity.
Buyers who are late in their careers or retired face their own challenge: They need to factor in living on a lower monthly income. Home owners who have equity in their property and a small monthly income from savings or pensions have several options to use the value of their home:
- A reverse mortgage, which enables home owners to release equity from their home into a monthly cash income
- A home equity loan, which allows the owner to release cash from their property in a way that is similar to a traditional loan. The cash is released in one lump sum and requires monthly payments.
- Sell the property and buy or rent a cheaper home, allowing the release of some cash.
Buying a Southern Maryland home and securing a mortgage requires preparation and research. Like any investment plan, home ownership planning is more profitable when you start early. As you pay off your loan and the value of your property increases, your equity in your home rises.
Waldorf MD Homes for Sale and Real Estate Services in Southern Maryland. You now have a search engine to help you with your Southern Maryland home search! And I’m ready to provide you with a custom home valuation if you’re considering selling your home. Let’s connect to discuss how I can help you. Contact Kimberly Bean at 301-440-1309
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