2.—How to Pay for Your Home
In buying a house and lot you must borrow what you cannot pay in cash. Remember that the more risks you assume, the fewer the lender will have to charge you for. Your promise to pay back what you borrow will be secured by a mortgage or trust on the property. A first mortgage loan on not over one-half or two-thirds of the value of a piece of property is a very safe investment, and the rates of interest should be low. The lender on a second mortgage takes more risk, and rates of interest and discounts are higher. If you agree to buy a home without the title passing to you at once, the seller takes less risk, and you may save money.
3.—Where to Get Loans
There are building and loan associations throughout the country, usually organized to serve the needs of people like yourself, who wish to finance a home. Their plan of weekly or monthly payments, both on principal and for interest, has proved sound from the experience of millions of people as an aid to systematic saving. Loans may often be obtained from savings banks, trust companies, state banks, individuals, and trustees for estates.
Obtaining money on a second mortgage is usually not so easy. Remember that when the owner of a house takes a second mortgage in payment he may plan to sell it for four-fifths or less of its face value, and that he probably charges you accordingly.
Above all, when you start to save for a home do not throw your money into glittering schemes that promise big dividends and the chance to borrow money at 3 per cent or less. The concerns behind such schemes cannot be trusted.
4.—How Much Can You Afford?
It is said that a man may own a home worth one and one-half to two and one-half times his annual income but the payments you make during the first few years after purchasing are what you should pay most attention to. Rent ordinarily requires from ten per cent, to twenty-five, or even more, of a family's annual income. In addition to what you ordinarily pay for rent, you can devote your customary savings, or more, to paying off the principal of loans on your home.
Following is an example: A man who earns $2,000 a year buys a house and lot costing $4,000. He has $1,000 cash to pay down on it, and obtains a loan of $3,000, or 75 per cent, of the value of the property, from a building and loan association.
Cost per year for a $4,000 house (not including depreciation)