Home Is Where The Heart Is: Finding And Owning Your Dream Home
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By Mia Bolaris-Forget
Should you or shouldn’t you. After all, it’s a life altering decision, one that could cost you for the rest of your lives, or a least a good portion of it. But, it’s also an investment worth making. It is one generally geared toward brining you lots of abundant pleasure, pride and joy, especially with growth and maturity. No, I am not talking about a child or starting a family, I’m talking about the prospect of buying a new home.
According to experts, this can be one of the most important decisions you can make as a couple or family, and in order to make the best choice, you not only need to keep your options open but realize and understand that traditional strategies for home ownership no longer apply.
When you examine the “big picture” statistics show that home ownership (despite, economy, job availability, and salary), is at an all time high and is continuing to grow. According to the U.S. Census Bureau, nearly 70 percent of Americans (compared to about 64 percent in 1990), due to lowered interest rates. Yet, experts note that regardless, especially due to increased cost of homes (and property tax), home ownership can still be quite a challenging process.
The best way, say experts, to approach this special venture is by knowing the facts, changing your attitude, and following a few simple guidelines.
1. Buyer Beware:
The Past: The standard was, that since real estate would always continue to rise, the best investment to make was securing something as soon as possible. This call to quick action would assure that your “dream” home wouldn’t become unattainable.
The Present: The pressure’s off with regards to making “snap” decisions. Instead experts suggest taking your time and making sure you make the RIGHT purchase (for you), including what’s best for your pocket book. And, experts agree that one of your key concerns is your ability to save for retirement, an emergency, and/or a rainy day.
Although professions point out the potential impossibility of paying off ALL outstanding debts prior to purchasing a home, that SHOULD be your ultimate objective and goal. In fact, they say, that if you can hold out for a home until you are debt-free, you should do so.
As far at the concept of it being just as cheap to own as to rent, not to mention a “lucrative” investment, experts note, that while for some it may be “true”, there are lots of misconceptions concerning that theory. For one, they remind couples that the tax benefits (depending on earning, mortgage interest, etc) may not be worth it, or simply may be negligible. Additionally, homes come with many added expenses most couples fail to consider, including new furniture, new appliances and/or tools, maintenance fees (such as a landscaper, higher heating and cooling, etc.)
Ready Or Not: The best way to determine if you are at a time and stage that would make buying over renting a smarter decision is by evaluating the following.
· Make a list of advantages of homeownership and compare them to a list of hardships and “disadvantages”
· Assess your household income over the next few years (three to five). Consider the risk of layoff, the likelihood of starting a family and/or the need for one partner to cut back on hours (at work) or to stay at home.
· Be realistic about where you are financially. Ideally you should have at least three to six month’s worth of living expenses saved for emergency purposes or to put toward your retirement (and that should be independent of age…remember, just because your young doesn’t mean you’re invincible or exempt from hardships in life). Finally, you should have little or no (outstanding) credit card debt, as well as the capacity to handle your financial affairs in cash. Plus, you should be almost if not completely student loan free.
2. Think Big:
The Past: “Old-school” thinking advocated starting out with something small that was easily affordable and easy to pay off, and work your way up with time.
The Present: Invest in something with appeal for longevity and that can accommodate your current situation or the situation you expect to be in, in the near future. Even I you want to upgrade at some point, you’ll find you won’t “need” to for feel pressured to. Experts remind homebuyers that there’s an indescribable reassurance in knowing you’ve (already) bought a home in a desirable neighborhood and school distract rather than living with the torment and burden of stressing over HAVING to make changes because of new changes if lifestyle such as a child and the desire to send him/her to the best (area) schools possible.
Another “disadvantage” to “starter” homes is that prices for these homes increase only as the real estate market increases (and not by much). Furthermore, they can be more difficult to sell during economic downturns. You can find yourself in more hot water if you buy one of these homes when the market is at or near its peak. Once the market weakens, and your in an area considered “less desirable” you could find yourself sitting on an investment that is losing value and costing you more than its “earning” (for) you.
Starter homes however, can be financially savvy investments. For example buying a starter home out of foreclosure proceedings. What that means is that the previous owners somehow “failed” to make or keep up with mortgage payments, so the bank too over the home and is selling the property at a huge discount to minimize losses. Another reason for investing in a starter home is if your rent is so high that you’re able to find a comparable or better deal on a small house, especially if you’re handy at renovations and can either enhance it for you and your family or make necessary changes in order to obtain a higher yield in resale (and don’t plan on staying in it for too long). The key however, is doing your homework, and keeping in mind the concept of location, location, location.
3. Go Long:
The Past: It used to be that the idea was to work hard (not necessarily smart), and getting your mortgage paid off as soon as possible.
The Present: New schools of thought preach working smart not hard and opting for a 30-year fixed rate mortgage, as opposed to shorter term ones.
While 15-year plans allow homeowners to pay off their loan sooner, they also mean a higher monthly payment. 30-year plans not only allow for lower monthly payments but also give more flexibility. You can pay it off more quickly, if you have the extra cash, and can be as simple as including an extra $100 per month (along with the monthly mortgage payment) to chip away at the principal. And, when you’re strapped for cash, you can simply make your monthly payment.
Fifteen year plans, on the other hand, mean higher monthly payments, despite lower interest rates, and often place an unnecessary burden on couples and families, with all their energy and income frequently going solely toward the mortgage goal, and generally depriving them of other imperative life experiences such as birth of children, travel, saving for children’s education, renovations, and/or retirement.
4. Cover Your Assets:
The Past: The general rule (of thumb) was waiting until there was an emergency until applying to a bank for money.
The Present: According to financial experts the best time to protect your investment if by immediately establishing a line of credit after purchasing your home (and that means both parties, unless of course one member has no control over spending).
A home-equity line of credit is based on how much equity there is in your home, on top of your mortgage. For instance, if your home is valued at $200,000 and your mortgage is $125, a bank may allow you to borrow another $35,000 through a home-equity line if credit. The total amount of home “loans” would add up to $160,ooo or 80% of your home’s value. The interest you would pay on the $35,000 would be tax-deductible, just like mortgage interest. The greatest advantage is that because it’s a credit line and not a loan (per se) you are not required to touch the money (unless you need it). It’s merely there as a “security blanket” and an emergency line of defense.
5. Get Connected:
The Past: It’s impossible to check out all the neighborhoods and houses up for sale to make the best decision.
The Present: Let the computer be your tour guide. From panoramic views to neighborhoods, and virtual tours of homes, to information about neighborhood ratings and complete area information (including restaurants, access to major roadways, school district quality, etc), your computer can serve as your online real estate agent.
While it may still be in your best interest (ultimately) to secure the services of a professional broker or apply directly to your local bank, the net may also be an ideal venue for comparison-shopping for interest rates and closing fees. However, experts warn about offers that seem too good to be true, they generally are….and they suggest proceeding with caution with regards to giving out personal information (unless you are comfortable with the person and institution you are dealing with and there’s good reason for it).
Experts note that while this major purchase can be one of the most rewarding experiences of your life, it can also be very “confusing” and frustrating. The suggest taking your time, being patient, being persistent and true to what you want (and need), and not making any rash or hasty decisions. Think things out clearly and refrain from letting your enthusiasm get the best of you. Remember, the most important decision when buying a house remains how the added (monthly) expenditure will affect your life and your family’s financial health.
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