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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.

woman handing keys to someone

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 percentage of your income should go to housing?

That’s correct.

Generally, you should aim to keep monthly housing expenses (including mortgage, taxes, insurance and maintenance) below 35%.  

Not exactly.

Generally, you should aim to keep monthly housing expenses (including mortgage, taxes, insurance and maintenance) below 35%.  

Source: credit.org

Note: These are general, recommended percentages. You should adjust for your personal budget as necessary.

 

 

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.

 

 

Determining your mortgage payment

Your mortgage payment will depend on a number of things:

  • Your down payment amount
  • Your interest rate
  • The length of the mortgage
  • The type of mortgage

Use Bank of America’s online mortgage calculator to help you figure out what level of payment you can afford.

Tip

Before you apply for a mortgage, get preapproved by Bank of America. Preapproval means a bank has verified your employment, income, credit and bank accounts, and provided a letter of commitment for a mortgage up to a certain amount. Preapproval can make you a more attractive and credible buyer

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

3 people at a table

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.

Interest only mortgages

- Typically for 5 to 7 years, you pay only interest and no principle.

- At the end of the 5 or 7 years, you make a “balloon” payment of the entire balance.

- Consider this type of mortgage if you plan to refinance toward the end of the term or expect to receive significant funds to pay off the loan.

Tip

With the Bank of America Digital Mortgage Experience™, you can streamline the mortgage application process.

3 people in a new home

Tax advantages

Home ownership offers a number of potential tax advantages:

  1. 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.
  2. You may be able to  deduct mortgage interest on up to $750,000 in loans used to purchase or significantly improve your home.1
  3. 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 $10,000 of the combined amount can be deducted each year.

Turn to your Bank of America team for guidance around mortgage options and buying a home.

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