- Benefits of Home Ownership
- Deciding Where to Live
- Home Purchase Details
- How Much Can I Afford
- Interactive Loan Toolkit
The intangibles are tough to measure, but there are other benefits you can quantify:
Financial investment: Your monthly mortgage payment creates equity for you, not your landlord.
The interest on your mortgage is a tax deduction: While this isn’t a reason in itself to buy a home, it’s nice to get a break at tax time.
Fixed monthly housing payment: If you opt for a fixed-rate mortgage, the monthly rate of your mortgage won’t change for the length of the term.
Tax-free gain: When it’s time to sell your home, you don’t pay taxes on the proceeds of the sale that are above what you paid (with some restrictions – see information on capital gains).
TIP: Look for a house you can stay in long-term; one that will “grow” with your family and needs. The financial benefits of owning increase over time.
It’s important to have a clear picture on the features that matter most to you in a home or location. Creating a list of “must haves” and flexible “nice-to-haves” from the start will make things a lot easier for you.
Factors to consider:
1. Size of home – square footage, number of bathrooms, rooms, etc.
2. Home features – updated fixtures/appliances, property size, garage, storage, etc.
3. Location – proximity to schools, open space, entertainment, work, etc.
4. Neighborhood – older or newer homes? Families, retirees or singles?
5. Room to grow – planning to have more children?
6. Condition – move-in ready or a less expensive home in need of improvements?
TIP: In many cases, it’s better to buy the smallest house on the most desirable block than the biggest house on the least desirable one. Buy location over house.
For some, the search takes a while; others find what they want right away. In either case, I can be a huge resource of insight and guidance, working through issues or complications that arise along the way.
Here’s a general outline of what to expect during a home purchase, from the buyer’s perspective:
Buyers make a purchase offer: This is it! You’ve found the home of your dreams, looked over disclosure documents, reviewed comparable sales data, talked it over with your agent and submitted an offer. The sellers may accept your first offer, but more often will return a counteroffer. In fact, additional negotiations are common, and I will help you through this generally stressful stage.
The sellers accept: Once everyone is happy with the terms, the parties have reached what is known as mutual acceptance and enter into a purchase and sale agreement.
Buyers put up earnest money: To solidify your intent to buy, you’ll place a deposit, or earnest money, on the property. The amount varies, but is generally at least 1 percent of the purchase price. You’ll write the check to the escrow company, not the seller. Note: This money counts toward your down payment later.
Escrow opens: The earnest money deposit goes into an escrow account, where all funds will be held until closing, when they are then distributed to the right people (lender, mortgage broker, title insurer, real estate agents, etc.).
Buyers apply for a mortgage: This step is streamlined if you’ve already been preapproved for a loan (which is a smart thing to do). If not, you’ll begin the loan application process now.
The lender inspects title history and orders a property appraisal: The lender needs key information about the property before granting a loan. This is when potential problems can come to light. For example, the appraisal could show a lower value than the purchase price, or the lender could have trouble finding comparable homes. Also, the title search could turn up liens or other problems.
A home inspection takes place: You’ll hire an inspector – I can recommend several – to check the home and point out minor and major problems that should be fixed before closing. At this point, you still have the option of backing out of the deal. Through me, you will submit a list of requested work, and the sellers have the option to complete the tasks, do some of them but not others, or reject the request. The sides will negotiate until reaching an agreement.
Removing contingencies: If the house passes inspection, appraisal and title search, and everything is good to go, then all contingencies can be removed, paving the way to a closing. Closing time arrives. Once contingencies are removed and financing is set, all parties sign a seemingly endless stack of documents, and the transaction closes.
Packing begins! When the final signatures are in place, it’s time to put down the pens, shake hands, exchange smiles and start packing for the move!
Here’s a good way to figure out how much you can afford:
The 28/36 Rule The 28/36 rule is an established benchmark used by many lenders to determine how much credit to offer you. Here’s how it works:
The “28” refers to the notion that no more than 28 percent of your gross monthly household income should go toward housing costs, which include mortgage principal, interest, taxes and insurance.
To calculate, simply multiply your gross monthly income (amount before taxes) by .28. Use this amount as a guide for how much house you can afford.
Example: You earn an annual salary of $70,000. Divide 70,000 by 12, giving you a monthly gross income of $5,833. Multiply that by .28, and you’ll find you should spend no more than $1,633 each month on total housing costs.
The “36” part of the 28/36 rule refers to your overall debt, which shouldn’t exceed 36 percent of your income. This is important to consider because other high monthly debt loads – such as car and credit card payments – impact the amount you can afford to spend on housing.
For first-time home buyers, the tricky part is knowing how much to budget for taxes and insurance.
Buying a home is exciting and, let’s face it, complicated. This booklet is a toolkit that can help you make better choices along your path to owning a home.
After you finish this toolkit:
- You’ll know the most important steps you need to take to get the best mortgage for your situation.
- You’ll better understand your closing costs and what it takes to buy a home
- You’ll see a few ways to be a successful homeowner