Real Estate Advice for New Home Owners from a New Home Owner

This is advice for the brand new home owner from a new home owner of some three years now living in Brooklyn, New York. I'll sum up the basic tips now in 1-2-3 style and then go into more detail.

1: Put down as much as you can afford on the principal
2: Go for a fixed mortgage
3: Keep a safety-net of a years pay in your bank account if possible

Having had a mortgage for the past 3 years there are some basic principles that quickly become apparent. It's a fact that the more money you can put down on the principal of your mortgage then the better off you'll be both in the long and short run. Unless you are an extremely canny investor and can make back more than your mortgage's interest is taking from you then it is better to invest money in your home than pretty much anything else. I mean just look at the stock market nowadays, it's a crap-shoot. Anyway, we began with a 30 year mortgage and put down as much as we possibly could whilst being sure to leave ourselves a safety net. It's vitally important, especially as a new home-owner to have a financial safety net and I would say that you should make sure that whilst putting down as much as you can on the principal to keep enough money back to cover at least 1 years living expenses, should you or your spouse become unemployed. Remember this too, banks would probably rather you didn't put a lot of money down, they'll certainly make a ton of money off you with all that interest from a full 30 year mortgage with a minimum down payment. Of course they want to know that you're financially stable and reliable enough to afford it but don't expect them to try and save you money.

If however you are in it for the long haul, you have a family and you have a very fixed budget then the full 30-year mortgage with low down payment is fine but if you should find that you are in a position financially to knock out some of that initial high interest by re-financing then do so, and the sooner you can do it then the better. For instance your first monthly/yearly mortgage payments may be made up of say 20% principal and 80% interest, so that's 80% waste basically. As the years go by this gradually switches around so that in the last months/years of your mortgage, say 30 years down the line you'll be paying 80% principal and 20% interest, only 20% waste. There's no point in waiting 15 years into a 30 year mortgage and then putting more money down. You will still save but those savings won't be anywhere near as profitable to you as if you could have done it in say the first few years.

We re-financed recently after about 3 years into the mortgage and to my surprise what this did was basically knock off the first few years of the mortgage rather than just lowering the monthly mortgage payments. So now we have a 22 year mortgage (down from a 30 year) which means we are cutting out the very highest interest first few initial years. In effect we've moved forward in time 5 years and the savings are substantial.

I would recommend going for the lowest fixed rate you can find from a big reliable bank that are fully insured and have a name you can trust. It's probably best if you can stay with your regular bank as you're more liable to have a reliable financial history with them that will put you in good standing. Do everything you can to improve or consolidate your credit score. Believe me, we offered the same amount as another couple for our condo and we got it purely because of our credit score. It is as important as people say. Lastly I'd say this don't be afraid, as soon as you have bought a place as much as your money is tied up with your property it sure beats renting and dealing with landlords. The real estate market goes up, it goes down and accordingly so does the interest rates. A home is always going to be a solid investment so go for it.