Purchasing a Home

Deciding to purchase a home is both an important personal choice and a critical financial decision. Families save for years to afford a down payment, which covers only a portion of a home's cost, and rely on a mortgage for remaining payments. Turning to your annuity lump sum is one solution for lowering the overall cost of your future home.

We help you run the numbers on achieving the American dream of home-ownership so you can plop down that welcome mat and start building equity.

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Owning a Home

Owning a home is one of the biggest financial decisions you can make. For prospective home buyers, using an annuity lump sum can help secure an affordable mortgage and home rather than simply spending money each month paying rent.

By buying a home, you successfully turn part of your living expenses into an asset. Instead of paying someone else, you’re paying yourself.

How Much Can You Afford?

The first step in buying a home is figuring out your budget. Banks will typically approve a mortgage with payments as high as 28 percent of your after-tax income.

However, each financial situation is unique. Banks have a vested interest in you maximizing that amount and spending more money with them. Getting your mortgage payment closer to 20 percent of your monthly after-tax income will allow you greater flexibility in your overall household budget with room to save for the future.

Things to Consider When Buying a Home

Right now is a great time to buy a home. According to real estate analytics company RealtyTrac, it’s cheaper to buy a house than rent one.

But there are some big differences between renting and buying, beyond just costs.

One thing to consider is time. If your experience matches the national average, you’ll live in a home you purchase for nine years. Because of this, make sure to carefully examine what you’re looking for in a home. Make sure before signing a 30-year mortgage that the things you can’t easily change about a home, like square footage and location, are exactly how you want them for the long haul.

Common Home Factors to Consider:
  • Location
  • Square Footage
  • School District
  • Spacious Kitchen
  • Property Taxes

Having a Down Payment

So you’ve found the house of your dreams, now what? Typically, once a prospective home buyer has 5 or 10 percent of the home’s value in the bank, they finance the rest with a mortgage, one that costs a fortune in interest.

Putting money down toward a down payment offers significant long-term savings on your home – decreasing the amount paid for interest, loan principal and monthly payments. The down payment also acts as a way to show the bank lending you the money that you’re as invested in the venture as they are.

The down payment is also good for the home buyer. What many don’t realize is that increasing a down payment for a $300,000 home by just 5 percent can reduce the total cost of the mortgage by as much as $30,000. With more money invested in the house via a down payment up front, you’re showing the bank you’re serious and saving yourself serious money.

Down Payment Facts:
  • Down payments vary between the minimum 3.5, for a Federal Housing Authority (FHA) loan, to 20 percent.
  • To qualify for a Federal Housing Authority (FHA) loan you’re required to have at least 3.5 percent to put down on a home.
  • However, 20 percent is the amount typically recommended by financial experts.

Understanding Your Mortgage

Let’s look at an example. You’ve found the home of your dreams for $300,000 and you’re ready to commit to a 30-year mortgage. If you can afford a down payment of $30,000 (which would be 10 percent of the cost), then you will need a mortgage of $270,000.

Banks look at a variety of factors to determine your loan eligibility and your credit-worthiness. They collect credit scores, employment history and the size of your down payment to determine your interest rate. According to The Washington Post, the average interest rate in 2014 was 3.99 percent for a fixed-rate loan. With a 10-percent down payment, you would need excellent credit to qualify for this rate.

With the help of a mortgage calculator, you can find out how much this will cost. In this example, monthly payments are $1,287.47.

30-year Mortgage for a $300,000 home:

Down payment %10
Down Payment$30,000
Total Mortgage$270,000
Mortgage Interest Rate3.99%
Monthly Cost$1,287.47
Total Interest Paid$193,487.47

The Difference a Down Payment Can Make

Using the money you acquired from selling your payments to bulk up your down payment can be a game-changer. A larger down payment often leads to a lower interest rate and dramatic savings. Savings are possible with a larger down payment even with a low interest rate.  For this example, we used an interest rate of 3.625 percent.

If you received even $15,000 from selling payments, you could increase your down payment to 15 percent. This reduces the mortgage total and the total interest is now $163,655.10. If we compare the interest on both mortgages, the difference between the old and new mortgages is nearly $30,000 — $193,487.47 – $163,655.10 = $29,832.37.

If you double your down payment to 20 percent, and keep the same interest rate, your savings will be closer to $40,000 — $193,487.47 – $154,028.32 = $39,459.15.

Every increase in the down payment significantly decreases the total interest paid:

Down payment %Down PaymentTotal MortgageMortgage Interest RateMonthly CostTotal Interest Paid

Turning Your Current Home Into Your Dream Home

If you’re already a homeowner, money from an annuity can also be used to make improvements to you home. Whether you’re hiring a professional or taking a trip to your closest home improvement store, the cost of projects can add up fast.

A newly remodeled kitchen or bathroom can be a great way to add value to your home’s worth. However, during home improvement projects setbacks can arise, like realizing your home needs whole sections of electrical or plumbing components replaced.

Instead of spending time waiting for payments to accumulate, your annuity cash can help you get started on your project sooner rather than later.

Projects that improve home value:
  • Creating an open floor plan
  • Landscaping to create curb appeal
  • Updated kitchen
  • Recessed lighting
  • Bathroom renovations
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