Buying a home
Buying a home requires a little homework
Owning your first home is an important and exciting milestone. If you are feeling stressed due to the work necessary to manage this complex process, you’re not alone. However, your financial advisor can help.
Getting started
To buy or not to buy?
Here are some things to consider when determining whether to rent or buy:
Renting
- Short term commitment, providing flexibility
- Upfront costs are less than with buying
- Ongoing costs for upkeep are less
Buying
- Potential to build equity over time
- Greater flexibility to customize/renovate
- Potential tax advantages including ability to deduct mortgage interest and taxes
Getting started buying a home
First, determine how much you can afford to spend on a home.
This depends on a number of factors:
- Your gross monthly income
- Any debts that you need to pay off
- The down payment you can afford to make
- Your anticipated real estate taxes and insurance
- Housing expenses (maintenance fees, condo fees, repairs and improvements)
- The size of a mortgage for which you’ll qualify
Take the quiz
What percent of your gross monthly income should you spend on housing expenses?
Choose an answer from the following buttons
That’s correct.
You should only spend 28% or less of your gross monthly income on housing expenses.
Not exactly.
Generally, you should aim to keep monthly housing expenses (including mortgage, taxes, insurance and maintenance) below 35%.
Source: Bankrate - What percentage of your income should go to a mortgage? August 05, 2025
Deciding on a down payment
- To get the best rate and terms for your home loan, try to put down at least 20% of the purchase price.
- Note: If your down payment is less than 20%, you may need to pay a monthly private mortgage insurance (PMI) payment.
- Your down payment will affect your interest rate, terms and monthly payments.
- Ask your lender for the minimum down payment required for your loan and if you might be eligible for any down payment or cost-saving assistance programs.
Applying for a mortgage
What will you need?
- Your bank preapproval letter
- Your most recent bank statements
- Any recent investment statements
- Your latest pay stub
- Your prior year’s form W-2 and tax return
- Any debt information
Note: Be sure your credit report is accurate. - A notarized letter if your parents are paying all or a portion of your down payment.
What will your lender provide?
- Within three days of applying for your loan, the lender must provide you with:
- The mortgage’s effective interest rate
- APR* information on adjustable rate mortgages
- A detailed estimate of your closing costs
- A government publication explaining these costs
*Annual percentage rate
Types of mortgages
There are three main types of mortgages:
Fixed-rate mortgages
- You pay the same amount each month
- Interest is fixed for the loan’s duration
- You can prepay and reduce your balance
- Terms are typically 15 or 30 years
Adjustable-rate mortgages
- Interest rate starts off lower than a fixed-rate mortgage
- After 1,3 or 5 years, the rate adjusts to current rates
- The monthly payment amount is recalculated each time the interest rate adjusts
- Consider this type of mortgage if you expect interest rates to fall, or if you plan to move after a few years.
Adjustable-rate mortgages
- Interest rate starts off lower than a fixed-rate mortgage
- After 1,3 or 5 years, the rate adjusts to current rates
- The monthly payment amount is recalculated each time the interest rate adjusts
- Consider this type of mortgage if you expect interest rates to fall, or if you plan to move after a few years.
Tip
With the Bank of America Digital Mortgage Experience™, you can streamline the mortgage application process.
Renting
- Short term commitment, providing flexibility
- Upfront costs are less than with buying
- Ongoing costs for upkeep are less
Buying
- Potential to build equity over time
- Greater flexibility to customize/renovate
- Potential tax advantages including ability to deduct mortgage interest and taxes
Tax advantages
Home ownership offers a number of potential tax advantages:
- Gain realized on the sale of a house (up to $250,000 for a single taxpayer and $500,000 for a married couple) may not be taxable.
- You may be able to deduct mortgage interest on up to $750,000 in loans used to purchase or significantly improve your home.1
- The real estate taxes that you pay may be deductible as part of your state and local taxes that include personal income taxes and real estate taxes. Up to $40,000 of the combined amount can be deducted each year. Please note that the deductible amount is subject to filing status and to AGI phaseouts. Please consult your tax advisor for your individual situation.Turn to your Bank of America team for guidance around mortgage options and buying a home.
