Andy and I went to our bank last Monday to talk to someone about home loans. Some of you may have seen on my Facebook page that it was just a little bit overwhelming for me.
Part of the expertise of have of being a financial planner is that I understand more about finances than the average person. So I thought I new a lot about buying a house. And it’s true that I do, but my goodness there was SO MUCH I didn’t know.
To start with there’s a lot of paperwork. Like, a lot. And a lot of little steps I didn’t know about. Did you know about earnest money? Apparently it’s a part of your down payment you put down in the process to show that you are serious about buying the house and at a point in the process if you choose to pull out of the deal you forfeit the money. Though that’s pretty deep into the process.
For A and I, what was so overwhelming was the amount of choices we have ahead of us. We wanted a simple 30-year fixed mortgage for a house that was less than $200,000. What we learned is that not only do we have options for the mortgage that include FHA loans, non-FHA loans, conventional loans, loans with opportunity points and percentage points, but we also have more options with the amount of house we can buy because of the tax deduction we can take.
I’m sure most of you know this, but if you are paying a mortgage, part of your payment goes toward principal and part toward interest. The part that goes to interest is tax deductible every year and that is how homeowners usually walk away with a large tax refund.
We are trying to keep our monthly mortgage payment below $1200 and in our tax bracket, the deduction and potential refund could make that amount effectively as low as $900. So the house guys (his name was Daniel) showed us how if we wanted to make our effective payment around $1200, we could actually buy a house with a mortgage payment closer to $1600 or $1700.
And we are most likely going to be approved for a loan that is about twice what we need because our credit/debt ratio is so low.
Also, we might want to do renovations, so let’s talk about construction loans.
By the end of the hour I was fried, totally hungry and need of a cocktail. I think part of the problem was that I went into the meeting having not eaten in a few hours.
In any case, we are going to start the process now rather than wait until January like we originally planned so hopefully we’ll be in a new place no later than October.
I need a margarita after just typing all that.