There are many reasons you should buy a home. This article applies to owner-occupied ownership when you buy a home, only. Rental real estate is quite different than owner occupied home ownership. I will walk you step-by-step through key elements of the home buying process.
The loans are more difficult to qualify for than owner occupied. Tax deductions are much treated differently. If you do not hold home investment long enough, you could be required to pay short-term capital gains taxes. These home buying tips will enable you to understand the most important elements of home buying you should know before your search.
The More You Know, The More You Grow In Useful Facts
Here Are 3 Factors to Consider Before You Purchase a Home:
1. Home prices are low or reasonably priced for your area, which makes the area affordable
Home prices fluctuate about every 7-10 years. Occasionally, due to a catastrophic event where there are a lot of foreclosures, the prices go way down. When the event is over, and people are back to work the prices usually go back up.
The prices fluctuate from low to high for several reasons. Some of the reasons are:
1) If there is a big layoff in a town, everyone is trying to sell at the same time and there are few buyers, home prices may take a nosedive.
2) A major industry has moved out of a town and there are few buyers for a home, prices will go down, 3) Interest rates have spiked up and it is hard for buyers to qualify for a mortgage and therefore prices of homes may correct down.
On the other hand, prices go up sometimes when:
1) Loans are easy to qualify for (as in the real estate crises from 2003-2008), and people got loans who should not have them, this causes many loan defaults in a short period of time.
2) A new high paying company may move into the area and there is a shortage of homes to buy, people start bidding up homes, as in some areas of the U.S. that have high employment and low inventory of homes.
3) New homes are not being built, and new companies move into the area quickly, so there is a shortage of homes.
You get the picture. Real estate does not go up constantly, as some beginner home buyers tend to think, there are sometimes corrections in a high market, and low markets go high for various reasons.
Never Rush to Buy a Home:
The point here is that you do not want to rush and buy a home in an area that you are not familiar with; the prices may be high and at the top of a market. For reasons unknown to you, prices are starting to come down.
This is important to know because, if you must sell in a short period, you may have to sell for less than you paid for the house. This is called, being under water with a mortgage, you will lose money.
Typical appreciation for a well-kept home usually runs around 3-5% per year, according to the National Association of Realtors.
Know what is going on in your area, make sure you are not buying at the top of a market, unless you know you will be in the area for a long time, otherwise, you could be stuck with a home you can’t sell for more than you paid.
You Will Have the Best House, for The Best Price Possible, if You Follow the Home Buying Process; When You Buy a Home.
2. Buy a home when you have had a steady job for a while.
It goes without saying that income is what pays the bills. Make sure that the company you work for is stable or your business is on sound footing before you buy a home with a mortgage.
Most mortgage companies will want to see 2 years of tax statements, in addition to that. They will usually also order their own copy directly from the Internal Revenue Service. If you are self-employed, agents will ask for actual bank records of your small business deposits.
During this time also make sure you have savings in place for a down payment, and escrow and closing cost. It is also a good idea to have additional savings to keep in place in case of a job layoff.
3. Buy a Home when you plan on living in the area for several years.
As I discussed in number 1, real estate goes up and down. When prices get high, many times there is a correction and prices come down for a while.
If you happen to NOT do your homework and buy in a real estate market that is about to come down, for a variety of reasons, you may find yourself upside down with your loan for a while.
This will take more years to make a profit on your loan. You will have to ride out the correction, and get back your escrow and closing cost as an initial investment. Normally it takes about 4 years just to get back your escrow and closing cost as the home value increases.
Corrections in the Real Estate Markets:
If you must ride out a correction it could take many years longer. If you happen to buy at the bottom of a real estate market, you could get lucky enough to ride up the value of your home, and you could sell much faster or a profit. It is important the house is well-kept and affordable for you.
In any case, you should study your area, study the real estate market, study the economy or the changing of the economy in the area, and know when to buy. That is; know if you are at the bottom or top of a market. Real Estate works best when it is held long term, a key factor in home buying tips.
In normal cases, it could take as long as 8-10 years to make a profit from your real estate purchase. Use this calculator to find out the home you can afford.
This will take more years to make a profit on your loan. You will have to ride out the correction, then get back your escrow and closing cost as an initial investment. Normally it takes about 4 years just to get back your escrow and closing cost as the home value increases. The home buying process tighly weaves, escrow, title, costs, mortgages and time.
In any case, you should study your area, study the real estate market, study the economy or the changing of the economy in the area. And know when to buy, that is; know if you are at the bottom or top of a market.
Use all of these great home buying tips to buy a great home, but first understand the home buying process.
Lois Center-Shabazz| Money Strategist | Course Delta Agency
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