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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It is best to build equity in your home over a number of years. Your goal should be to pay your home off in 15 or 30 years or earlier, if possible. Then sell it, and live off the proceeds as part of your retirement, or leave money to your heirs to purchase their own home.
Should you decide to acquire a new home loan your income should easily support the new payment. If you do not have an income or your income is limited, you should not acquire a new loan. A loan has to easily supported by your income NOT your equity. The income you have is what you will use to pay your monthly mortgage with
If you do acquire a new home loan you should:
- Have income to easily support your home loan.
This sounds like a simple concept. But, for many who want a home they think, “buy the home first, then figure out how to pay for it”. Please don’t put the “cart before the horse”, so to speak. You make yourself susceptible to bad loans and bad lenders when you buy a home before you have done your research and determined that you can afford a quality loan. The keyword being quality. The high quality loan, the more qualified you are the more likely you are to stay in your home long term, build equity, and retire without a payment, because it will be paid off by you.
- Have researched an affordable, high-quality loan yourself or have a relative research one for you. Compare several home loans, read the fine print, ask plenty of questions, understand all of the terms of the loans. See home buying at Msfinancialsavvy’s home buying course where you will learn over 100 ways to successfully buy a home. It is targeted to women, buy of course men will benefit too. Home buying is tricky, so I recommend you take this very inexpensive home buying course well in advance of buying a home.
- Make sure the appraised value of other homes in your neighborhood substantiates the added cost of a new or additional home loan. Understand and verify in writing you have a high-quality loan with no balloon payment attached. Some home buying purchase a home based on emotions and not all of the facts they need to make sure they are not cheated. You can easily overpay for a home when you buy on emotions. This can happen if the sellers lie about amenities or if the neighborhood is going down in value, so for instance you check the last four home sales in the area, but home values are trending down, so you get a home that you could have negotiated way down if you had this information.
- Understand in writing, the actual interest rate of your loan, obtain an interest rate you can afford or do not obtain the loan. Sometimes interest rates change before signing for your new loan.
- Understand it does not make good financial sense to replace a loan that is nearly paid off with a long-term loan of 15 or 30 years. Once you have your home paid off you are home free. No more payments, you can call it rent/mortgage free, so DON’T mess it up at this time. Especially if your income is not set after retirement, you don’t want to increase your liabilities with a new loan if you are not increasing your income.
- Visit, www.fdic.gov (see “looking for a mortgage”)
There has been a lot of information in the media lately about predatory lenders, they prey on the poor, under-educated homeowners with lots of equity in their homes. If you know of anyone in this category educate them about the dangers of unsolicited home loans or home loans with potential balloon payments.
Remember; do not forget to read the fine print. Also, if you don’t have a job, don’t get another loan. If you need a business loan, don’t use your house; get a bank business loan or Small Business Administration loan, see www.sba.gov. Another option is to delay starting a business until you can acquire proper funding.
For First Time Home Buyers
There are many things you need to do before you start looking for a home to buy. Many people fail because they go to a mortgage broker first, who rushes them into the process, get a home that is difficult to pay for, and fail. You will not be a part of this statistic if you follow a few simple rules. In this article I will tell you where to began with these 5 things to consider for first time home buyers:
1. The Home Buyers Mindset
2. Why Buy a Home
3. How to Keep Your Home Long Term
4. Resources to Help You Buy and Keep your Home
5. The First Things You Need to do Before Contacting a Home Buyer Agency.
1. The Home Buyers Mindset
- Purchasing a home is an investment if the home is carefully chosen, is well-maintained home, and is affordable for your budget.
- You have a home buyers mindset if you understand the above and you love to fix things and don’t mind home maintenance from detecting problems to getting them fixed in a timely manner.
- Before you get involved with homebuying research, you should understand what it means to have plumbing, electrical, heating, air conditioning and roofing problems.
- There is no landlord to call because you are your own landlord and are responsible for your own home.
- The earlier you detect and fix things the better off you are.
2. Why Buy a Home?
- Your home is a place for privacy and this is probably the most important part about home ownership.
- Your payment is frozen in time, this will benefit you financially long term versus having to rent.
- Your payment will stay frozen in time provided you DO NOT take a loan against it. Home refinance is where many first time homeowners lose their home.
- Your home is a place for your kids to grow up in and call home.
- Your home is an investment in your future, f you maintain it, and keep your original loan.
3. How to Keep Your Home Long Term
- Understand the first bill you pay monthly should be your mortgage. If you are sick, well, hurt or depressed, your mortgage has to be paid.
- Do your research in quality home loans to avoid predatory loans. And, avoid refinance loans. Do it right the first time. Your home is not an ATM machine, don’t allow anyone to talk you into to treating it as such, by refinancing after you already have a quality loan.
- Don’t allow anyone to talk you into using your home for car or education loans. Get a car loan at your credit union or bank, save money for your education or get an extra job to pay tuition. There are also education loans.
- Keep your home maintenance current don’t let a leak turn into a flood. The difference in cost to repair and the amount of damage is huge.
4. Resources to help you buy and keep your home
- There are local, state, and federal resources to help you with home buying.
- You are required to take classes and should take classes in most first time home buyer programs.
- Check www.hud.gov for federal resources to help you with home buying. Go to your state’s website and search home buying help for state resources.
5. The first things you need to do before contacting a home buyer agency and prepare for a quality low-interest loan;
A) Stop buying stuff
B) Start selling stuff you don’t need, don’t use, and don’t like – get rid of a large car loan payment if you can sell the car and get a cheaper one.
C) Pay off small bills first, that are the easiest to pay off.
D) Stop using credit cards, if you do, pay off your balances monthly.
All of these things will help to increase your credit score. The higher your credit score the better interest rate and quality loan you can get. First time home buyers need to be aware that getting a low-cost quality loan is at the top of their home buying agenda.
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