$

$

$

EQUITY

$200k

EQUITY

$200k

$200k

$200k

$200k

$200k

$100k

$100k

$200k

$200k

$50k

$50k

$200k

$200k

$0

$0

$200k

$200k

EQUITY CHANGES

EQUITY CHANGES

UNDERWATER

UNDERWATER

VALUE: $400k

VALUE: $300k

VALUE: $250k

VALUE: $200k

50% EQUITY

MORTGAGE

33% EQUITY

MORTGAGE

20% EQUITY

MORTGAGE

MORTGAGE

        Estimate what you can afford to spend  

by reviewing your budget, consulting with 

your financial advisers, and comparing the 

results of several online home-buying  

calculators—though the calculators may ask 

for information you don’t have, such as esti-

mated real estate taxes and insurance costs

        Start looking at homes in your price range  

in areas you have identified as places you’d 

like to live 

Unless you qualify for a Federal 

Housing Administration (FHA) mortgage, 

a Department of Veterans Affairs home 

loan guarantee, assistance through the 

Community Reinvestment Act (CRA), or 

another government program—including 

people buying in rural areas and people 

with disabilities—you should expect lend-

ers to require a 20% cash down payment. 

When estimating what you can afford, 

remember that you have to include real 

estate taxes, which can vary dramatically 

from place to place. If you have children, 

remember that higher real estate taxes 

may be correlated with a good public 

school system. So paying higher taxes may 

be cheaper in the long run than paying 

for private school. The same is true about 

proximity to public transportation if you 

Is now the right time to buy a home 

instead of renting? Should you sell the 

home you’re living in and buy another one? 

The answers to these questions are always 

a combination of financial and personal 

priorities, sometimes prompted by a new 

job or a growing family. 

A BUYER’S CHECKLIST

If you’re thinking seriously about buying, 

you’ll want to:

        Evaluate how much you have for a down  

payment, either from savings or potential 

profit from the sale of your current home 

Buying a Home

To buy or not to buy? It may be more complicated than  

you think.

IT’S ALL ABOUT EQUITY

When you make a down payment on a 

home, that amount determines your 

equity, or the percentage of the property 

you actually own. The more you put down, 

the greater your equity. And, as you pay off 

the mortgage loan principal, your equity 

increases. When the loan is fully paid, your 

equity is 100%, and the home is yours, free 

and clear.

But there is another factor at work in 

building equity: the market value of real 

estate, which changes all the time. That 

means your equity can increase if the  

market value of your home increases. 

But, the reverse is also true. If the market 

value drops, your equity could shrink, a 

situation that a large number of home- 

owners faced during the fiscal crisis  

starting in 2008. 

 In a simplified example, assume  

that a home you bought for $300,000  

with a $200,000 mortgage grew in value  

to $400,000. Your initial equity of 33% 

HOME FINANCE

HOME FINANCE

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