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Considering Homeownership? Here’s What You Need to Know.


Buying a home can be an exciting and emotional process. Before starting your home search, you’ll want to understand the ins and outs of the homebuying process. This will empower you to make decisions that are the best for your family — and your wallet.

When shopping for a home, cost is a big factor. It helps to know the upfront and ongoing costs of homeownership and how they fit in with your other expenses. Upfront costs will likely include a down payment, closing costs and additional funds for various required inspections. Ongoing costs may include: mortgage payments, maintenance and repairs, utilities and homeowners association or condo fees.

The majority of buyers afford their home with the help of a mortgage. Your mortgage payment typically includes: principal (the amount you borrow), interest, property taxes and insurance. Along with your homeowner’s insurance, you generally pay Private Mortgage Insurance (PMI) until you have 20% equity in the home. PMI protects the lender if you stop making payments on your mortgage. Depending on your mortgage and how much equity you have in your home, you may be able to pay taxes and homeowner’s insurance separately from your mortgage payment.

There are two main types of loans—conventional loans and alternative loans with either fixed-rates or adjustable rates. Conventional loans aren’t insured by the federal government and are an option for those with good credit and who have saved enough to make a larger down payment. FHA Loans are backed by the Federal Housing Administration (FHA) and allow for down payments as low as 3.5%. VA Loans are backed by the Dept of Veterans Affairs (VA), offering a loan program to eligible veterans, current service members, and surviving spouses. Fixed-rate mortgages lock in the same interest rate for the loans entirety. Adjustable-rate mortgages (ARM) typically start with a fixed-rate for a set number of months or years. After the initial period, the interest rate may increase or decrease, and your mortgage payment may increase or decrease as well.

For many people, the biggest obstacles to homeownership are low credit scores and paying off current debts. To prepare for future homeownership, you should:

Improve your credit score
Check your credit report for free at and make sure it’s accurate. Make on-time payments for all bills and make at least the minimum payments on your debts (but the more you can allocate toward debt payments, the more quickly your credit score may improve over time).

Don’t get into further debt
Examine your current spending and create a sensible budget. Pay down your debts to improve your debt-to-income ratio. Save up for a down payment and other up-front costs. Your debt-to-income ratio, or DTI, equals your monthly debt payments divided by your gross income and is expressed as a percentage. Lenders use this number to determine your ability to afford your debt payments.

Creating a “future homeowner” cash cushion
When you’re ready to buy a home, you’ll need a big cash cushion for the down payment, closing costs and an emergency fund to cover unexpected home repairs. If you plan to pay property taxes separately from your mortgage, you’ll need enough cash to cover one or two lump sum tax payments per year as well.

When considering homeownership, be sure to think about your reasons for wanting to buy a home, your current and future lifestyle and your budget, available savings and current debts. While there are many benefits, homeownership is not for everyone at every stage of their life. By evaluating your specific needs,  you’ll be better able to identify an ideal time to buy a home.

Merck EFCU is ready to answer any questions regarding your home buying journey, now or in the future. In addition to our knowledgeable staff, we offer our members free online financial education modules to provide advice on buying a home. The Financial Wellness Center also includes modules on overall financial wellness, investing, retirement and small business. Visit to access the Financial Wellness Center.