June 22nd, 2018 8:46 AM by Jackie A. Graves, President
If you’re looking to Refinance or Buy a Home click here before rates rise.
yourself from making an emotional decision you may regret, take the time to
answer these easy questions before you make your move.
1. Why Do You Want to Buy a
80% of Millennials plan to buy a home in
the future, according to a survey conducted by Apartment List. But why?
There is a deeply
held belief in the United States that homeownership is a strong long-term
investment. The data, however, tells us otherwise. The Case-Shiller Home Price
Index, tracked by the Federal Reserve, shows us that home prices have only
risen 0.4% a year, adjusted for inflation, since 1890. Much lower than bonds or
the stock market, with a whole lot less liquidity. Moreover, keep in mind, the
Case-Shiller Index is only tracking property values. It doesn't include
maintenance expenses, broker fees, and closing costs.
you might be better off renting. If, and only if, you have the discipline to
invest the difference in cost.
a home is about a lot more than money. A home provides shelter and stability.
It can give peace of mind, knowing that where you lay your head at night
isn't subject to the whims of a landlord. If these lifestyle reasons are
important to you, move forward with your search. Just don't expect your house
to make you rich.
2. How Long Do You Plan to Be In
Your Current Location?
primary residence should always be a long-term investment. There are friction
costs associated with moving that make it incredibly difficult to break even,
never mind make money, when you buy and sell in a short time frame.
estimates that closing costs range from 2% to 5% of the home value. Add in real
estate agent fees on the sale, averaging 5% to 7%, and as well as transfer
taxes in some states. With potential total expenses over 7% to 12% of the home
value, you'll need to see a hefty increase in selling price to break even.
rule-of-thumb offered by real estate agents is to make sure you plan to be in
one location for at least five years. This allows you to build some equity in
the home and hopefully see a bit of price appreciation, even if you aren't in a
fast-moving market. Consider how you want your life and family to look several
years into the future and make sure the house you buy today can accommodate
your longer-term needs. If you think you may be headed out of town, you
may want to hold off on your home purchase.
3. Do You Have a Real Estate
Agent You Can Trust?
Unless you're a
residential real estate investor, you may not know what to look for when you
walk into a house. You'll be relying on your real estate agent to provide you
with the right questions to ask. Plus, a great agent can supply other
insights beyond helping you get the best price today. The agent might notice
flaws in the layout or property that might make resale hard in the future or
early signs that a neighborhood is improving.
Before hiring a
real estate agent, be sure to interview a few different people. Find someone
that has substantial experience and seems to understand your needs.
husband and I chose a highly successful and brutally honest agent after
interviewing her with a question list like this one. We didn't want someone who was going
to beat around the bush. She talked us out of attending more than a few
open houses, explaining why the price was too high or why it wasn't a good fit
for our needs. She wasn't in a rush to get us into just any house; she wanted
to find us the right home.
As a first time
homebuyer, always find your own agent. Even if the seller's agent offers
to represent both parties, it is tough for them to be impartial. The seller was
their client first, of course. Working with your own agent doesn't cost
you anything and puts someone in your corner.
4. How Much House
Can You Afford?
The basic rule
of thumb for determining how much house you can afford is the Rule of 28. This
rule says that your mortgage payment shouldn't exceed 28% of your gross monthly
income (before taxes). However, it leaves much to be desired in terms of
The Rule of 28
ignores PMI (private mortgage insurance, usually required if you have a down
payment less than 20%), property taxes, home insurance, and association
fees, if applicable. It also ignores whether you have other debts, which could
restrict your cash flow and make it harder to be approved for a mortgage.
Sit down and
review your budget before starting your home search. Determine how much you are
comfortable committing to housing, without sacrificing your other goals, then
use that figure to back into your target price range. The preapproval figure
from the bank may be a lot more than your budget can handle.
forget to consider maintenance in this conversation. Over the long-term,
home maintenance costs are around 1% of the home value each year. For example,
a $400,000 house should expect $4,000 in maintenance expense each year.
However, actual costs year-to-year will vary greatly. Know what types of
maintenance you plan to handle yourself, and how you'll cover the costs of
5. What Is On Your Must-Have
most valuable thing we learned in our first-time homebuyer experience? Have a
written must-haves list.
It can be all
too easy to lose sight of the things you want when you're walking through
beautiful homes perfectly cleaned up for eager buyers. If you start to get
emotionally attached to a house, you may begin to ignore some of the core needs
that made you start your home buying process in the first place.
Have some fun
and sketch out what you want in a house. Then break down the list by
what items are genuinely make-or-break, what things would be nice to have,
and what is just fantasy. Check it with your real estate agent to ensure that
your desires are realistic for your price range. If they aren't, decide if
you want to revise your list or wait until you can afford the home you want.
Even with a
list to use as a focus point, you may not end up with everything you want. But
if you're patient and practical, you'll find the perfect home for you.
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