Planning For What Life Brings – Segment One
What is your next big life event? Will it be purchasing a home? According to 2,000 Americans surveyed by Homes.com, 40% said buying a home was the most stressful event in modern life. Whatever the circumstance, we want to help you successfully plan for and manage it, reducing the amount of stress that home buying may have on you or your family. HFG Wealth Management is your life planning specialist.
The American Dream
Whether it’s your first home or a vacation home you’ve been dreaming of, there are many things to consider when planning to buy. Being well-informed prior to your purchase will prevent most of the unexpected or unwanted from happening. HFG partners with local real estate, mortgage, and title companies which allows for a seamless home buying and/or selling experience.
Three things to consider when buying a home is the mortgage, the insurance, and the closing costs.
- What type of mortgage is best?
- What type of insurance do I need?
- How much are my closing costs?
HFG takes it further, we look at the bigger picture and ask “how does buying a home fit into your financial goals?”
These three simple questions can become extremely complex and costly when you don’t look at the big picture. Do you know how much house you can afford? Rule of thumb is 2 ½ times your annual income, but does this apply to your situation? Will your income grow as fast as inflation? The big housing bubble “burst” in 2008 should definitely have you considering real estate values and finance options.
After careful consideration regarding how much house you can afford lies the question, what type of mortgage is best for your situation? Determining how long you plan on owning the home will help determine what type of mortgage might be best? There are two types of mortgages, a fixed rate and an adjustable rate (ARM). A fixed rate mortgage is set for the duration of the loan whether it be 15, 20, or 30 years, and an ARM is fixed for a shorter amount of time before it adjusts annually according to the terms.
Documents required for the mortgage:
- Credit report for all buyers
- Proof of employment and income, W-2’s, 1040 for two consecutive years along with 30-days of paystubs
- All bank account and investment statements for three consecutive months, along with the source of down payment
Many realtors will ask you for a prequalification, preapproval, or commitment letter from your lending institution before they will start showing you homes in your price range and desired locations. Many home sellers will want a commitment letter prior to considering an offer.
A prequalification letter does not necessarily mean you are guaranteed the mortgage, this is just the estimate of how much financing you may be qualified to borrow. A preapproval letter will be provided after you apply for a mortgage, but the loan is still not 100% guaranteed. Your lender will provide you with a commitment letter once they are certain on your qualified mortgage amount.
You will want to consider insurance regardless if you have a mortgage or not. Three types of insurance to consider are homeowners, life, and disability income.
All mortgage companies will require homeowners insurance. Homeowners insurance will protect both the lender and you against fire, burglary, lawsuits, and other natural acts. Mortgage life insurance is a financial protection policy that will cover your outstanding mortgage debt in the event of your death. If you are married, both parties will want to consider mortgage life insurance. Disability mortgage insurance works in the same manner as life insurance; should you become disabled due to sickness or injury and can’t work, disability insurance can provide money to help you pay your mortgage, along with other monthly expenses.
A title company is usually designated by the seller and/or their realtor. This information can be obtained when submitting an offer on the home, but most importantly, you will want to know how much your closing costs will be. Your mortgage company can give you a rough estimate of this out of pocket cost, but be certain to bring your checkbook, and expect for a higher rather than lower figure.
Closing costs include:
- Title or attorney fees: they will prepare and review all documents needed to close the loan
- Appraisal fee: since the house is collateral for the mortgage, the lender will verify the home’s value is comparable to recent sales in the area
- Points: a point is equal to 1% of the loan amount borrowed, most lenders are able to negotiate this percentage rate so don’t be afraid to ask
- Recording fees: your city or county charges for reporting a transfer of deed into their public record
- Title search & title insurance fees: the title company will do a search on the property to verify legal ownership and any possible liens that will need to be cleared prior to the transfer of deed. Title insurance is a form of indemnity insurance insuring against financial loss from defects in the title
- Lender’s fees: loan or document preparation and processing by the lender, these charges too may possibly be negotiated
Whenever you’re ready for your next home purchase, give HFG Wealth Management a call, our expert advisors can help assure you will be well informed through the home-buying process and you are staying on track with your long-term financial goals.
At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals utilizing the life planning approach, our purpose is to assist individuals, families and businesses in creating a long-term vision that is consistent with their core values. At HFG, we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.
“The information contained herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”