Analyze your strategic plan

Congratulations, this is your first step to buying a home. Your decision to buy a home should start with the big WHYs. WHY do you want to own a home and WHY should you own a home.

What are the determining factors in your decision? Write down why you are looking to buy a home. Are you currently renting? Are you relocating? Do you want the freedom of homeownership? Is your family growing and you just need more space? Maybe it is a combination of all of these questions, which is very common. Once you determine the reason behind your quest to buy a home, you will have a clear picture of your goal.

Next, you need to determine your needs and wants. What does your family really need and what does your family want in a new home. Think about the basics first. Location, size of the home, # of bedrooms, and # of bathrooms. Then decide on your budget. (More on this later) Next you need to decide on your wants. Write down the list of things your family would like to have in a home but are not as important as the needs. Things like this can include a large back yard, pool, game room, hardwood floors, and the like. In a perfect world, you will find a home that satisfies all of your needs and wants. It is more realistic that you will be giving up some items from both lists or adding to one or the other. You will find, after doing research, looking at homes, and talking about it with your family, the list will evolve into a much clearer picture of what you are looking for in a home. You will also receive guidance throughout the entire process from your Buyer’s Agent. Your Buyer’s Agent will help you with the master list of needs and wants from a professional perspective.

House or Home ?

Buying real estate often comes with two words, house or home. A house is simply a place you eat, sleep, park your car, and store your stuff. Whereas a home is where you live. A home is where you feel safe, comfortable, and can raise a family. Buying a home can be an emotional experience. A house is something you buy as an investment out of necessity. 

Leave your emotions out of the home

Buying real estate can be an emotional experience when it comes to your life and where you spend most of your time. Where you live can determine how you live. Buying real estate needs to be a balancing act. If you let all of your emotions decide your purchase, most likely the house will be more of a burden than a blessing. Usually your finances will suffer and you will be forced to go through selling and downgrading to something within your budget. Think of buying a home like this : Buying a house is buying real estate so I can live in a safe, comfortable environment where I can raise my family and enjoy life. Life is too short to over extend yourself financially and risk your livelihood. Buy smart now. You will find that you have an investment for the future at a price you are willing to pay.

Reasons NOT to buy a home

I always ask my clients, what is your buying strategy? What is your exit plan? How long do you want to live there? How much money do you need to put into the home now and how much will it sell for in the future? Keep in mind that a typical listing agent will ask for 6% of the sales price, when you do decide to sell your home. You don’t want to buy the home at market value, with very little money down and then have to sell in a year or two. Typically your home has not increased in value in that short amount of time to pay the 6% agent commission. Plan ahead. If you think you will need to relocate in a few years, be prepared to either put more money down as equity or have some cash reserves to pay for the sale of your home.

If you are new to the area, you might not know what locations would work best for you and your family. People get acclimated to new areas at different paces. Some people have the ability to know exactly where everything is in just one visit where others need to make multiple trips. Sometimes it is best to rent a home or apartment for a few months to get acquainted with the area better.

A new job or an uncertain career path is a good reason not to buy a home now. If you don’t have a clear picture of where your career is going, or if you feel that your company could be downsizing, now is not the time to buy.

Economic uncertainty comes up a lot. This situation has two sides. On one side, you could be uncertain about the future of you main source of income. On the other hand, uncertain economic times are an excellent time to find a bargain on a home. Sellers are not seeing the activity of the market when the economy is stronger. So, they know they must sell their home at a below market value. Uncertain economics cause panic throughout the entire chain of buying and selling real estate. Investors panic to find great deals and sellers panic because they can’t sell their house for what they thought. Determine your financial future. Do you have other sources of income? Do you have a plan B? What if you lost your job, what would you do? Do I have enough cash reserves to make it 3-6 months?  If you know a positive answer to all of these questions, buying a home in a poor economy situation is an excellent choice.

But I have been told that buying a home is always a good idea !

As a fairly general rule, homes appreciate about four or five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region.  Real estate is local. Check with your local Buyer’s Agent to see how the market is doing in your area. Buying a “home” as an investment is not always the best approach. Some so called “experts” say that buying a home is the best investment you can make.

Being Truthful…..

Let’s consider this. You buy a home for $200,000 and you put 10% down. You initial investment is $20,000. let’s say your closing costs are around $8,000. Your investment is $28,000. In a normal market where your home value increases 5% per year, you earn $10,000 a year. That’s a 35% rate of return per year on your investment. Sounds good right ?

You are also making a mortgage payment and paying taxes and insurance on your investment. Let’s assume your monthly payment is $1700. Each year you pay $20,400. Depending on your mortgage interest rate, a small portion of this will go towards the principal owed. For this discussion we will be generous and say that half of your monthly payment goes toward the principal. That leaves you with paying $10,200 per year for taxes and insurance. Now, where did your rate of return go? Also, you will have other costs associated when you decide to sell your home to use the equity.

The government will allow you to itemize your mortgage interest and your property taxes paid on your home. It will only benefit IF it is combined with your other deductions and exceeds your standard deduction amount. In some cases this will reduce your taxable income.

There are a number of variables that can increase your rate of return like home improvements, buying below market value, and getting a great interest rate. Above are examples of a normal situation in a normal market.

The bottom line is…

Don’t buy a “home” as an investment. Overtime you most likely will build up equity in your home but you will have also made many contributions towards the mortgage interest, taxes, and insurance. Buy your home as a place to live where you are safe, comfortable, and can afford it. Consider the equity as a savings account. It will be there when you decide to buy another home.

Stay within your budget

Over the years, mortgage companies have made it easier and easier to buy a home which caused the mortgage industry meltdown in 2008, followed by a sharp increase in foreclosures. Lenders are out to give you as much money as they see possible. The more they lend, the more they make, so long as the mortgagee makes the payments. Be careful about how much they say you are qualified for. Set a monthly budget before even talking to a lender and stick to your budget.

Benefits of Homeownership

You have the freedom to do what you want to your home. You no longer need to ask permission to do home improvements. It does not make sense to put thousands of dollars into a rent house that you don’t even own. Some home improvements can actually increase the overall value of your home. There are also many misconceptions about home improvements. For instance, does a $20,000 pool add $20,000 to the value of my home? Check back on our websites for the best home improvements for home equity.

There is more space in a home and yard than an apartment or townhome. Even if you are moving from a rent home, the same monthly payment will typically yield a larger home and yard. If you are moving to a home for the first time, you will be very pleased with all of the new space you have. You might even find yourself parking your cars in your new garage.

I hope this information has helped you get on the right path to homeownership. It is not every day (or every few years even) that you buy a home. There are a lot of things to consider and choosing the right Buyer’s Agent will help in your decision process.