Mortgage rates rise and home prices rise not even sure what the difference is between the two. How does this affect my chances of buying my new home? I don’t really get Real Estate jargon and I’m terrified of getting scammed.
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Interest is how much you pay the person that loans you money. It’s typically specified as a percentage of the loan and calculated on a yearly basis. This is money you never see again.
Principle is a magical word that refers to the payments you make towards the loan amount. It’s money you will never see again. It just means you owe less money.
The purchase price is the amount of money the seller is receiving for their hoom.
Most lenders want you to chip in what’s called a down payment. Your down payment plus the loan amount will add up the the purchase price. You can expect this to be at least 3% of the purchase price. It’s money you will never see again but in exchange you get to borrow less money.
You can expect a hundred other fees associated with the middlemen that you or the seller choose to hire. These are called closing costs. Typically the seller has to pay off the buyer’s realtor but you will still be on the hook for all sorts of stuff. You can expect closing costs to be around 10% of the hoom purchase price. This is money you never see again.
When you sell your hoom, you get the purchase price minus however much you are paying the middlemen who you and the buyer hired. You can expect to get a check for 94% of the hoom sales price.
The lender will require you to pay off the loan before you see a dime of that.
Equity is a magical word that refers to the amount you will get to keep after you sell and pay everyone off. It is determined at the time you sell.
The correct way to evaluate whether a hoom was a good investment is decide how much you would be willing to pay to rent the place out. Take the amount of equity you got after you sold it after paying everybody off, and subtract it from every penny you paid along the way including everything I mentioned above plus any additional money you spent maintaining or improving the hoom, taxes, insurance, and hoom owner association fees. Divide that amount by the number of months you lived the hoom. If the amount you were willing to pay in rent is more than the amount you spent to live there then you got a good deal.
Unfortunately you won’t know whether you got a good deal until you sell your hoom.
Be sure to interview the middlemen before you agree to enlist their services. Be wary of realtors who tell you things they cannot know such as future interest rates and future hoom sales prices. Be wary of lenders who do not require a fee to lock in your loan interest rate before the sale occurs. Be wary of sellers who require non refundable payments prior to the hoom sale. Basically be very careful and skeptical of everyone because they are the ones getting paid and you are what’s for dinner.
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