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Before you shop for your first home, read our First-Time Home Buyer Kit to help make your experience a pleasant one!
Click on the tabs bellow to find everything you need to know about buying your first home. Or, check out our other kits, identified below. Contact us for more assistance. We'll be happy to help.
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MYTH: "Buying the most expensive home you can afford makes economic sense."
REALITY: When homes in an area are appreciating rapidly, it may be a good idea to buy as much as you can afford. The more you invest, the more you'll get back when you sell, assuming the market remains strong.
Buyers should exercise greater caution, however, during times of slower appreciation. The extra money paid for that "most expensive" home might bring a better return if invested elsewhere.
In either case, make certain you don't bite off more, financially, than you can chew.
"Tax deductions can make homeownership as affordable as renting."
Unlike renters, homeowners get part of their monthly payments back at tax time. That's because the mortgage interest they pay is (in most cases) fully tax deductible.
For a mortgage payment of, say, $1,000 (principal and interest only), you could purchase a home for $151,426 if you put a 10% down payment on a 30-year loan at 8%. If your payments started in January, your first-year mortgage-interest tax deduction would be $10,862. Assuming you are in the 28% tax bracket, you would save $3,041 in taxes--that's $253 per month. So the $1,000 payment mentioned earlier is really $747 when computing the homeowner's tax advantage.
MYTH: "You can get a better deal buying a home without the help of a real estate agent."
REALITY: In today's litigious times, buying a home without a professional in your corner can be a costly mistake. Who will ensure your interests are taken care of in the process? Do you know what disclosures are required? Do you know what the seller's agent is not allowed to tell you that a buyer's agent must tell you?
When you're dealing with the most expensive investment of your life, you owe it to yourself to get help from someone who has your best interests at heart.
"The best time to think about selling your home is when you're buying it."
Unless you know you're buying your very last home, make sure you don't invest in a property that's going to be hard to sell later on. Check out plans for development in your area. The two-lane road way out front could become a four-lane highway on your doorstep someday. High-power lines might be slated to run next to the home. The lovely open area out back could become a shopping mall or apartment community.
Be careful, too, about the kind of features you buy. Are you looking at the only modern home in a community of colonials? Will many buyers want a high-maintenance swimming pool, a corner lot or an especially small master bedroom?
MYTH: "The more real estate agents you use to shop with, the better chance you'll have of seeing all the properties on the market and getting a good deal."
REALITY: With today's computerized multiple listing service and cooperation between real estate companies, buyers don't have to work with several agents to get to all the housing inventory. In fact, today, with buyer brokerage, agents show the best properties to their clients first. Buyers who link up with an agent and show loyalty to that agent get better service than buyers who skip from agent to agent.
"There's a big difference between a 'handyman's special' and a 'money pit.'"
Well-located homes in need of tender loving care can be a terrific value. If you're interested in building "sweat equity" fixing up a home, hire a professional inspector to ensure the home won't cost you a fortune to refurbish.
A worthy handyman's special will be structurally sound with all major systems in good working order--heating/cooling, plumbing, electrical, roof. Those are the most costly items to repair or replace. Your time and effort will be better spent painting, making minor repairs, adding or replacing fixtures, sprucing up the landscaping, and accomplishing other low-cost fix-ups.
MYTH: "You don't need a real estate agent to purchase a home; you can get all the information you need on the Internet."
REALITY: There's a big difference between information and knowledge. Unless you know how to decipher the mountains of information on the Web, all you have are printed pages with addresses and pictures on them.
With such an important decision, buyers need to know everything there is to know about a property--and that includes seeing it inside first hand. Added to that, a real estate professional's knowledge of how to negotiate a contact and follow through from financing to closing is critical to a successful home purchase.
"Interest rates and home prices tend to move in opposite directions."Some people mistakenly believe buying a home is a bad idea when prices are up or when interest rates are high. In fact, either of those situations can be a great time to buy.
History shows that high interest rates dampen demand for homes. With fewer buyers available, sellers can't raise their prices--in fact, they may have to drop asking prices to get their homes sold. That's a good opportunity for buyers, who can always refinance when interest rates drop, as they eventually will.
Low interest rates, on the other hand, tend to bring buyers into the market, bidding home prices up. The low rates, however, make those higher prices more affordable for buyers.
"Working with a buyer's agent is like having a real estate advisor, a home finder and a financial consultant--all for free!"Until recently, real estate agents were legally bound to represent the seller's interests in a real estate transaction, whether they were the "listing agent" or the agent who helped the buyer find the home.
That's all changed. Today, buyer's agents not only help buyers find homes, they can help negotiate price and contract terms on the buyer's behalf; provide information about a home, the sellers, previous offers and counteroffers; and help arrange for financing, among other services. In most cases, buyer's agents are paid from the sales commissions offered by sellers. (Some arrangements, however, may require payment from the buyer.)
"Location. Location. Location."No doubt, you've heard this age-old real estate maxim before. You can redecorate, rebuild, relandscape, perhaps even modify certain aspects of a home's location (e.g., erecting a sound barrier, planting a wind screen), but practically speaking, you can't change where a home is located.
At minimum, avoid locations that involve high noise levels, unsavory elements, traffic, pollution, crime, poorly kept homes and decreasing property values. Instead, look in areas where homes are appreciating and close (but not next to) employment, good schools, transportation, shopping, entertainment, restaurants and parks. Remember, a home priced low due to its location will sell low due to location later on.
"Buy for today with an eye on selling tomorrow."The home you buy will affect you personally and financially for quite a while. Make sure it's a home you'll still want to own several years down the road.
Will you be starting or expanding your family? Buy a home with extra space now. Is your income likely to increase over the next several years? Stretching your budget early may make sense if you'll be happy in the home longer. Are there any plans for major changes in the area? New roads, housing or shopping developments, and expanded commercial activity could affect your home's value--positively or negatively. In short, it pays to look ahead before you leap into your next home.
"Stay focused--you're buying a home, not appliances and fixtures."It's easy for home buyers to get side-tracked when negotiating the purchase of a home. With such a large price tag, you want to get as much out of the deal as possible.
Unless the sales contract states otherwise, anything physically attached to a home usually conveys with it--ceiling fans, chandeliers, light fixtures, etc. Negotiations can break down, though, when sellers want to take a particular item with them (perhaps for sentimental reasons), or they're only willing to convey an item at an additional cost. As a buyer, you should remain flexible. Getting too caught up in the details could mean losing what you really want--the home.
"Buy the lowest priced house in the highest priced neighborhood you can afford."It's smart to buy at the low end of a desirable neighborhood because your less-expensive home will appreciate on the coattails of your neighbors' sought-after homes. Buying low also gives you some room to fix-up or add-on without exceeding average prices in the area.
If you find a home that's selling under market, be sure to find out why. First, get a professional inspection to make sure nothing major is wrong. Next, check the location. If it's next to a high school, for example, think twice about the traffic and noise next door. If you're lucky, the home may be sound and well-located but perhaps in less-than-optimal condition--something you can put right with "sweat equity." The home could also be priced lower than average because it is smaller than average or the sellers are under pressure to move quickly.
"The heart buys a place to live, the head buys a good investment, together they buy the perfect home."With a price tag involving many zeros, buying a home fits squarely into the investment category. Yet, choosing a home strictly as an investment may not be a great idea. If you ignore your lifestyle needs and aesthetic preferences, you could get unhappy enough to sell your investment long before it can provide a return.
Look for a balance between your personal needs and your financial goals by paying attention to appreciation rates in the area; neighborhood amenities; purchase and maintenance costs; size and architectural style; and proximity to work, schools, friends, shopping and entertainment.
"Mortgage pre-approval is the best first step to a home purchase."Finding out how much home you can afford is basic to a successful home search. But getting pre-approved for a mortgage is even better. Why? A lender who pre-qualifies a buyer is merely saying that a quick overview of the buyer's financial picture indicates he or she can afford a home of a certain price. Pre-approving the buyer, however, means the lender has taken an in-depth look at the buyer's finances and made a commitment to finance the buyer's home choice up to a certain price. (This assumes the home appraises well and meets other lender criteria).
Home sellers heavily favor buyers who back their purchase offers with loan pre-approval because those contracts have a higher probability of going to settlement.
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Wednesday, September 08, 2010
