Buying A Home

Emotion VS Equity

Dreaming of home ownership? Owning a home, is often mentioned as necessary for the "good life." This is in spite of rising home prices in the local real estate market.

Sometimes, the desire to have your own home can preclude the practical decisions concerning the purchase. First-time home buyers, in particular, are often guided by their emotions, rather than financial terms when choosing which house to buy.

There are many ways to protect your investment. Buying a home should be approached systematically, with eyes wide open, using your brain instead of your heart. Take off your rose- colored glasses and stick to your goals.

If you presently are renting, should you consider buying? This decision can be affected by market conditions, including mortgage rates, home prices, and supply and demand. With current interest rates at their lowest, it makes sense to invest, and even with higher rates, the trend is to “break even” as a minimum when you sell.

In financial terms, for most people, the advantages of home ownership and tax considerations, often outweigh those of renting. Renting, on the other hand, does give a greater sense of freedom to move, requires little upkeep or responsibility, and doesn't tie up one's money. In today' s market, if you just plan to live in a house for a few years, you can't take for granted that prices will keep rising or that you will be able to sell when you want to. Homes priced correctly may receive a full price offer within days and close in a month or two, but that is not always the case. The type of home, such as a condo, or mobile home, may take 6 months or longer to sell due to the lack of demand. Consider resale value before you purchase to avoid future headaches and losses.

It always is important to discuss your financial and tax implications of home ownership with a professional accountant or other knowledgeable financial manager. Paying off a mortgage ultimately builds equity, which can be used as collateral for financing your next home or other purchases down the road. Each individual home buyer should set goals to fit their situation. Falling in love with a particular house is wonderful, but should not be the only reason for buying it.

Calculating what price range you can afford helps you conduct your house hunt with realistic expectations. Most real estate agents today require that you be pre-approved for a loan before they will show you homes. This is because most sellers require proof of financial qualification before they will accept an offer to purchase their home. To determine this, you need to know how much money the bank will allow you to borrow.

There are some simple ways of calculating this yourself: Subtract all your non-housing monthly debts and expenses such as credit cards, loan payments, tuition, transportation, food, and clothing, from your monthly income. This amount should come to a maximum of 33% of your total monthly income.

Armed with this information, find a lender, who will confirm and refine these numbers for you based on current interest rates. Because mortgage lending is so competitive these days, some lenders will do this with no obligation on your part, or charge a small fee for a credit check only.

Also important is how much money you can make available for a down payment that is paid upon the signing of a purchase agreement contract. The larger your down payment is, the more equity you will have in your home and the smaller your monthly mortgage payments will be.

Closing costs should be calculated as well, since these funds must be available at the time of closing. A good rule of thumb is to estimate three to five percent of the purchase price. Your lender should be able to estimate all of the costs associated with a real estate purchase. Don’t forget: these are only estimates. You should always have a little extra cash for unexpected expenses.

After analyzing your financial status and what price home you can afford, the next step is to seek out the help of qualified professionals to assist you throughout the various stages. This gives you the security of knowing that there are experts out there who can assist you and are just a phone call away.

These experts include a real estate agent, bankers or mortgage brokers, and a home inspection company. The escrow and title company are going to ensure that you receive clear title to the property, and all payments are made as agreed upon. Talk to your friends and family, possibly even co-workers to get recommendations of professionals with whom they have had good experiences. It always is better to go with a recommendation than a name out of a phone book. Make a list of the names and phone numbers of these professionals and keep it on hand at all times. Your real estate agent can also help refer you to other professionals, but you are not obligated to use these resources unless you feel comfortable with them. A true professional in their field should not mind you interviewing them before making a decision.

Although home priorities will vary, they are essential to every house hunt. Schools, neighborhood, commuting distance, property taxes, energy efficiency, shopping accessibility, and recreational facilities are but a few of the considerations a buyer should make beforehand. Print out the buyer’s checklist to help you get started.

For the first-time home buyer, deciding priorities often is the hardest part, but worth the time and effort. It is very important to have them clear in your mind before you see the first house, since it is easy to throw practicality out the window when you see that adorable house, that may be totally inappropriate for you in the long term.

Rate a list of your priorities on a scale of one to 10. Keep this list with you for reference each time you look at a house. That way, you won't wake up one day in a house that is 40 minutes away from the bus stop when you have to walk to work. You should also prioritize your wants from needs. A former athlete may need a ground floor condo because of a bad knee, and want a fireplace for those chilly winters.

One of the first things to think about is the style of house you are interested in. Keep in mind that many styles of homes are not readily available in all neighborhoods, an added reason for stating a preference early on. That way, if the only home style you like is contemporary and there are virtually none available in the area you want to look in, you may want to compromise and choose a more popular style.

Location is probably the biggest factor to be considered when determining if a particular home is a good investment, now and in the future. What street and even where on the street the house is positioned can add to value. Look around at the other homes. Buying the worst house on a great street is much smarter than buying the best house on a street with cars abandoned in the front yards.

Other investment features include: quality of construction and materials; the physical condition of the home; floor plan; garages; entrances; number and placement of windows; decks/porches/patios; number of bathrooms; closets and storage; bedrooms (how many and what size); family room/den, to name a few.

At this point, you are ready to begin your house hunt. If you have no restraints on when you must move, then consider the factors involved in the time of year you start your search. Sellers are commonly optimistic in early spring, and become increasingly receptive to offers (below asking price) later on toward, and into, the fall. Remember, though, that if you first are house hunting in the summer, you may not be in your new home when the school year begins. It takes time to find that perfect house, as well as to close on it. Generally 30 to 45 days to close a sale should be expected.

October through December are considered real estate bargain months in the residential market, despite fewer listings to choose from, most people do not want to be moving during the holiday season. January is a good time to start checking listings if you plan to buy in early spring, since a seller who lists at this time may have pressing reasons to sell early in the season.

With so many listings to choose from and free time so much in demand these days, many house hunters will try to see as many homes as possible in the least amount of time. What often happens is that, by the end of the day, you can't remember which house had what amenity. It’s a good idea to get in the habit of grabbing a flyer at each house, and jot notes on the back to remind you of the positives and negatives of each home before you leave to the next one. To avoid unnecessary trips back for a second look, keep notes of the special features of each house as you narrow down the choices. Your real estate agent should be able to provide you with computerized sheets on each house, if flyers are unavailable.

Taking this a step further, you can develop a "best home rating." Using the priorities you developed earlier in your house hunt, separate each into one of three categories: financial, design, and general. Financial should include such considerations as asking price, property taxes, energy efficiency, commuting expenses, and property condition. Design should cover suitability of house, number of bedrooms and baths, kitchen, etc. General should encompass items such as neighborhood, schools, shopping, recreation, and entertainment. All categories can have an "other" that you feel is especially important. You may find the home that best suits your needs, isn’t the one that looks the best. If this occurs, think about how to tailor colors, landscaping, or other cosmetic factors to your liking in the future. After all, that is part of home ownership is making it yours. Refer again to economics above emotion because emotions can be fickle from year to year.

There will come the time when you are ready to make an offer to purchase, based on the asking price in the form of a legal contract. This is the beginning of the negotiation stage of the house-buying process; often the most intimidating to the first- time buyer. If you find a home you like, don't take too long to make an offer, the house may be sold to someone else if you do.

You and the seller must come to an agreement on the sale price, usually after some concessions by both parties, and generally with your realtor as the middleman. It is important to remember that, in most cases, the realtor is paid by commission from the seller, so it is important to discuss your legal rights upon first meeting with the agent. Today, the laws have changed to include “buyer’s agents” which are legally bound to keep your information as a buyer private in order to negotiate in your favor.

In Washington, the typical real estate purchase and sale contracts are forms that let real estate agents or brokers fill in the blanks to. These forms are recognized as legal contracts, reviewed by the board of realtors, and may not be altered except in small, specified ways (such as listing what belongings are included with the purchase).

Most often, earnest money is required at the time of contract signing. This protects the seller from a buyer that may decide not to purchase without legal reason. To protect the buyer, there should be a clause in the contract stating that the sale is contingent on a satisfactory inspection. Any major deficiencies (as defined in the contract) will have to be negotiated as to who will pay for the repairs. This generally happens after a contract has been accepted by the seller, within a predetermined reasonable time.

First time buyers are strongly encouraged to find a home inspector which can evaluate the major elements of a house and provide you with facts about its physical condition. Included in the basic fee (which averages around $300) is a full report, following the inspection. This summarizes the findings and makes recommendations or requests further inspection professionals. It is important to join the inspector on the inspection, not only to learn about any defects uncovered, but for helpful tips on operation and maintenance of the systems in the house. A first-time buyer may find this experience enlightening and well worth the two or more hours it generally takes. Criteria for selecting a home inspection service:
1) Choose an impartial company, meaning one that has no conflict of interest with the decision to purchase.
2) Examine the company's past experience. For instance, how long has it been operating and how many inspections has it performed? Check with the Better Business Bureau for any complaints.
3) Look into the firm's reputation and find out if its work is regarded as professional. One measure of this is if it carries the necessary insurance, including "errors and omissions." This is the equivalent of professional liability or malpractice insurance.
4) What kind of training do the inspectors receive and how up-to-date are they?
5) Determine if the firm is credible. Ask for references.

Some of the additional safeguards a home buyer can take are title insurance, homeowner's, flood, and personal liability insurance policies, and a pre-closing inspection. The latter usually is done within 2 to 3 days of closing and is much more than a last "walk-through" of the house. When properly done, this is a final check of the property by the buyer to confirm its physical condition. You may also need to verify that items which were agreed to are left or repaired by the seller. Some home inspection services will provide buyers with a pre-closing checklist to help them perform the inspection systematically and thoroughly.

With these added elements, and following these guidelines, you will sleep better knowing you are doing just about everything in your power to protect your investment.