How To Buy Your First Home
people have a lot of questions when they are thinking about buying their first
home. Do I have enough money for a down payment? Do I qualify for a mortgage?
Can I find a home that I like at a price that I can afford? All of these
questions, and probably more concern you. Buying a home is most likely the
single most important financial decision of your life. I can help you each step
of the way. One of the reasons people use a Realtor® is for their knowledge
and ability. As an experienced Realtor® I have gone through this process
many times. I know what to do and when to do it. I can help you avoid common
mistakes and help you negotiate the best possible deal. What does this cost
you, as a buyer? Nothing! I always receive a commission from the seller.
What are some of the reasons for owning your own home?
* Pay rent and you accumulate a pile of receipts at the end of the year. Own
the home and you accumulate equity.
* Most of your mortgage payments, in the early years, is interest. Mortgage
interest is a deductible expense on your income taxes.
* Property taxes are also a tax deduction on your income taxes.
* If you meet the IRS guidelines, a home office is also a deduction on your
Steps to buying a home.
* You have to determine how much you can afford for a down payments and monthly
morgage payments. I can help you determine this amount through a formula that
* Decide how much you want to spend.
* Decide where you want to live. What kind of neighborhood? What kind of
schools? Urban, Suburban or rural areas?
* Decide what kind of home your want: new, older, single family, duplex,
* Try to find a home in an area that will appreciate. At some time, when you
build up enough equity, you may want to step up to a bigger and better home.
* Find a good Realtor®, hopefully me, that will help you develop a good
sense of prices and market conditions.
* See enough houses so you can compare what is out there and fits your needs
* Through your agent, make an offer to purchase the home.
* Have the home inspected.
* Confirm your mortgage loan.
* Attend closing and you are the proud owner of your own home!
The above is really only a brief summary of the steps to home ownership. Having
the right Realtor® can make this a simple, painless process; having the
wrong agent can make it the worst experience of your life. Choose wisely,
Home Ownership Versus Renting
Nearly a full third of households are still renting...but if you are one of them, you could be paying a hefty price.
Additionally, the children of the baby boomer generation are close to or at the home buying age, but these
"echo boomers" could mistakenly decide to put off the purchase of a home because of all the noise about a "bubble" in home prices.
Is there a "bubble"? The simple answer is "no". Even if interest rates move a bit higher, it won't be enough to
cause a nationwide slide in home prices. The key to a healthy housing market is the job market. If the payment
on a new home might be slightly higher due to increased interest rates, it generally won't stop someone from
purchasing the home of their dreams...but if they feel their job is in jeopardy, it might be enough to stop them
from making a move. So with the currently low levels of unemployment and the beefy gains in job creations,
it looks like the housing market will remain vibrant. Although it will be difficult to sustain the double-digit gains
that much of the country has seen, price declines are highly unlikely. Expect a more moderate rate of appreciation,
perhaps closer to the historical 6-7% range, which is still very good.
It is important to note that housing tends to be localized. So if the job market in your area is weak, housing prices
could under perform the rest of the country.
But this talk of a housing bubble has been going on for a few years now, and those who were unfortunately
victimized by continuing to rent instead of purchasing a home are painfully mulling over their missed opportunity.
But is it too late? Even with the more moderate levels of appreciation expected?procrastinating on that home
purchase could cost you a bundle.
Let's look at an example. If you are paying rent at $1,500 per month and your landlord increases your payment
by a modest 5% each year, you would wind up paying just about $100,000 over a 5-year period! Worse yet,
after forking over $100,000, you still would have nothing to show for it.
And speaking of having nothing to show for it - how about any improvements you might make to a rental property?
It's not uncommon for renters to freshen up the paint, install new light fixtures or plant some nice flowers outside.
But guess what?all your efforts, labor and the benefit of that improvement belong to the landlord, not to you.
With the extensive variety of programs to help buyers obtain a mortgage with little to even zero down payment,
the very same money could have been used towards home ownership. Even using a standard 30-year fixed program,
a mortgage of $300,000 could be obtained with a total monthly mortgage payment - including property taxes and insurance -
of around $2,200. Assuming a 25% tax bracket, this would be equivalent to the average amount spent on rent
during the same period after your tax benefit.
And the benefits of home ownership are quite considerable. Because the mortgage is being paid down each month,
equity is being built. After 5-years, the $300,000 mortgage would be reduced to $279,000, adding $21,000 to your net worth.
Home appreciation can add an even bigger chunk. If your home appreciates at a modest 5% per year, the value of a
$300,000 home would increase to $383,000 after 5-years. Subtract the remaining mortgage of $279,000 and you
have a whopping $104,000 of additional net worth! Even if the appreciation level were at 3.5% or half the historical norm,
the result would be $77,000 of additional net worth.
But if laying out the initial increase in monthly payment and having to wait for your tax benefit to show up next April is a
tough nut to crack, the IRS wants to help. Instead of waiting to file for the tax benefits derived from your new home purchase,
you can simply adjust the amount of your withholding. This allows you to have less tax withheld from each paycheck so you
can handle the new mortgage payment more comfortably throughout the year. In essence, you are taking your tax refund
as you go instead of letting Uncle Sam hold it all year, interest free.
Visit www.irs.gov and use the IRS withholding calculator. This very handy tool can quickly show you the effect a change
in withholding will do to your net paycheck. Remember to balance this with the expected refund and it is always a good
idea to check with your tax advisor.
Don't be victimized by the bubble hype. Buying a home is a big step, but it is almost always one in the right direction.
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Albuquerque Real Estate and Homes: Patrick Montrose: Coldwell Banker
All about the
Real Estate Market in the Metropolitan Albuquerque Area.
Copyright 1996-2007 Patrick Montrose all rights reserved.