Buying Your First Home

Buying a home is an exciting time, but it can be a bit nerve-wracking – especially if you’re a first-time homebuyer. The following guide will give you a rough idea of what to expect throughout the process:

Your First Steps

• Determine how much mortgage you can afford.
  Buying a home isn’t just substituting your rent payment with a mortgage. Spend some time looking at your budget to see how much you can afford to spend on housing each month – just don’t forget to include things like taxes, homeowner’s insurance and a separate savings fund for major home repairs you may need down the road.

• Get pre-qualified for a mortgage.
  Before you even start looking at homes, you’ll want to sit down with your banker or a representative from a mortgage lending company to get pre-qualified for a loan. Basically, the lender will review your finances and determine how much of a loan they’re willing to give you. Knowing this number will help you narrow down the houses that will fit within your budget.

Moving Forward with the Home Buying Process

• Choose an agent.
  As a first-time home buyer, going at it alone can prove overwhelming. Look for an agent who’s familiar with real estate trends in the area and who has the necessary connections to get you into the home of your dreams. This is a major decision, so don’t make it lightly!

• Begin Searching for Homes.
  Yes, this is the fun part – the one you’ve been waiting for since you started thinking about buying your first home. Your agent will help you narrow down the pool of available homes, but you’ll still need to visit each home for a tour. Throughout this process, take careful notes and plenty of pictures to use when coming to a final decision.

The Final Stages

• Make an Offer.
  Once you’ve chosen your ideal home, your agent will help you prepare your offer. He or she will determine a good starting point for your price negotiations and will present your offer to the seller’s agent. If the offer is rejected, your real estate agent will help you to figure out your next steps, whether it’s submitting a new offer or moving on to another home.

• Wrap up the Process.
  Even after your offer has been accepted, you still got work to do. Throughout this period, you’ll need to complete a home inspection and follow up on your closing paperwork. In these final steps, your real estate agent will be an invaluable resource in keeping track of all the paperwork that’s necessary to complete the purchase of your first home.

Finding the Right Home

Of course, the home buying process rarely proceeds according to these six, straightforward steps. As you move forward, you may run into complications, such as a rejected bid or a failed inspection. However, with the assistance of a qualified real estate agent, it is possible to navigate these challenges until you reach your end result – a home you can call your own.

Home can be sweet whether you rent or buy

For people who’ve never owned a home, the relative cost-effectiveness of buying and renting is a frequent concern. Understanding the benefits and the risks of both options can help people make the right decisions. There was a time when buying was almost always considered to be the better choice, but today this is not always so.

Before you decide whether to buy or rent

Once upon a time, homeowners enjoyed mortgage payments that were equal to or, in many cases, less than rental payments on comparable houses. Times have changed, however, and so have rent and mortgage prices. Today, because so many factors are involved there’s little consistency to be had in answering the question of whether it’s best to rent or buy. To take just one example, in the past, people tended to live in the same home for thirty years or more. This made home ownership a wise choice for many.

Lifestyle choices

For people who work in fields may require them to relocate in the next three to five years, or for people who have goals of moving to an area where homes are more expensive, buying now may not be the best option. However, for those who plan to live for the next several years in an area where they can currently afford to buy, then buying may be the better choice. Naturally, in any given situation, the decision depends on many factors other than current market prices and job stability, but considering a purchase under these circumstances makes good sense.

Home maintenance

Prospective home buyers should also consider ownership costs beyond a mortgage, home insurance, and real estate taxes. When those costs are factored in, the cost of owning a home can far exceed the cost of renting one. Maintenance costs may include:

• Repairs
• Gardening and landscaping
• Homeowner association fees (when applicable)
• Routine maintenance (painting, cosmetic updating, etc.)
• Major repairs and remodeling

For those who wish to avoid these additional costs or who determine that they cannot afford these costs on top of monthly mortgage payments, insurance, and taxes, home ownership may not be the choice.

Tax considerations

Home ownership is often provides special tax breaks. For instance, homeowners are able to deduct the interest paid on mortgages loan from their taxable incomes. When the interest paid on a mortgage is sufficient to allow a homeowner to itemize deductions, the tax savings can be significant. Before purchasing a home, it’s a good idea to calculate anticipated tax breaks resulting from payment of mortgage interest. Homeowners may also benefit from other deductions, such as property taxes.

The final analysis

In many cases, home ownership can offer financial savings and stability. However, it’s not necessarily the best choice for everyone. When considering whether to buy or rent, each person must weigh his or her own personal pros and cons in addition to the general considerations mentioned above.

Choose the home that's right for you (Photo: flickr.com)

Is your plate big enough?

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So think long and hard about what you need in a home, because the mortgage costs are very real. Even if you are in a dual-income family, with both at the average income, the average home and average mortgage are hard to swallow. If you’re looking at a larger, nicer home with all the amenities in a more desirable part of the country, $300,000, $400,000 and up can easily fill your plate and then some.

What’s reasonable to pay for a home?

You might be wondering how much is reasonable to spend on a home. You must take mortgage costs into account. This is a difficult question to answer precisely, because everyone’s situation differs, from income to debt to living and purchasing preferences. For each person you ask, you’ll likely receive a different answer. However, try something like this and see how it works:

1. The cost of your home should be no more than three times your annual salary. Thus, if you earn around the average of $35,000, a $105,000 should be well within your price range. That won’t net you a new home anywhere, but if you shop well, you may be able to find a nice older home in a good neighborhood.
2. Consider the burden of debt you currently have, and how long you expect to take to pay it off. Whether it’s student loans, credit cards or anything else, you have to take everything into account. Mortgage costs aren’t something you can simply take on and assume you’ll be able to “make it fit” within a sketchy budget. See how all the puzzle pieces fit together. Be honest and do your homework, no matter how much it hurts.
3. Consider the lifestyle you want to maintain. If you’re single, do you need a massive home? If you’re looking for space for a family, does each child need a separate bedroom, or can you double up and save when possible? Also important, do you need lots of stuff to fill your home? Downsizing one’s life can no only save money, but help you develop a more meditative personal focus that’s as good a shield against the chaotic slings and arrows of the world as anything. Free yourself from the rat race, eliminate clutter in your home and budget and see how relaxed you’ll feel. Make sure you’re patient with yourself here; a former pack rat will need lots of time and support to sweat out that all-consuming desire for stuff. Like many other delusions that plague humankind, the need for and bondage to possessions – materialism – can easily be classified as a disorder.

Make the right choice for you

Know the home you can afford and do everything within your power to create happiness within your space. In the 1977 children’s book “The Big Orange Splot” by Daniel Manus Pinkwater, suburban denizen Mr. Plumbean has the right idea about what our home should be: “My home is me and I am it. My home is where I like to be, and it looks like all my dreams.” By accepting limitations when it comes to buying a home, rather than grieving over them or attempting to overcompensate, not only will you preserve your own piece of mind, but you’ll reduce your need to dig deep into the mortgage quagmire and put yourself on track to build a happy, healthy life you’ll like to live.

Home ownership is an expensive endeavor (Photo: flickr.com)

For most people, the greatest monetary expense they will take on during their lifetime is that of buying a home. Despite the fact that mortgage costs are tremendous. From ubiquitous idiomatic expressions like “home is where the heart is” to classic exclamations the caliber of “He is happiest, be he king or peasant, who finds peace in his home” (from the famous German writer Johann Wolfgang von Goethe), we have been sold on the notion that the true way to find peace of mind and live a happy life is to invest oneself – and a large portion of one’s money – in building a home that can catch those rays of never-ending happiness like sunshine in a bottle… a 2,000-square-foot “bottle” made of wood, plaster, cement, nails and a sub-prime mortgage.

Your American Dream may vary

Aside from the boogeyman sub-prime reference, it all sounds exciting, doesn’t it? However, what many people forget when the excitement of buying/renting and settling into a new home or apartment sets in is the very real mortgage costs of paying for that brand new palace. Does your home suit you and your financial situation, or are you a stranger in a strange land, without the economic wherewithal to pay the bills and keep hold of your little slice of the “American Dream.”

Speaking of the “American Dream,” it’s interesting how the primary association most people make in their minds is material success. Novelist James Truslow Adams, who coined the popular phrase in his 1931 book “The Epic of America,” was hardly so specific. He referenced a belief in freedom that allows all citizens and residents of this country to achieve their personal goals through hard work. One of those could certainly be a big house on the hill or a beachfront manor, but for most people, aiming for the stars and missing still may land them on the Moon – where they can’t breathe, let alone afford staggering mortgage costs.

The numbers are truly frightening

Before you make the spur-of-the-moment leap into potential absurdity, where rational thought about how you’ll afford huge mortgage or rent payments is thrown out the window, strap yourself down and do some research. As of this moment (August 26, 2009), at the U.S. national average of 5.31 percent interest on a 30-year fixed-rate mortgage, a U.S. median-priced home of $210,100 actually costs $504,186. For a $250,000 mortgage where payments begin on Sept. 1 (as an example), that’s $254,816 in interest, $75,863 in property taxes, $30,345 in PMI and a $1,390 monthly mortgage payment. That doesn’t even take into account property tax and private mortgage insurance (PMI). Then you’re paying at least an additional $100,000 over the life of your 30-year fixed-rate mortgage. Add that and you’re looking at a total cost of over $600,000 for your home initially valued at $210,100.

Nearly half of the money you fork over to pay off your mortgage (which translates from Old French to “a pledge until death”) is used just to pay off the interest. This is certainly a lot more money that anyone has between their couch cushions and more than most can realistically afford in a nation where the average salary is somewhere around $35,000 per year and Federal Minimum Wage is $7.25 per hour. And keep in mind that the above rates are average. If you have less than perfect credit and are looking into a subprime hybrid mortgage – which has been oh so popular and oh so controversial lately – expect your interest rate to be much higher.

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As demand for payday loans continues to rise, demand for houses continues to fall.

Home prices are sinking lower and lower, and for some people that might make the “buy low” part of the old investment adage ring in their heads. However, MarketWatch has come up with a list of pretty compelling reasons why you shouldn’t buy a house in 2009. Here are a few.

Uncomfortable without a cushion

For any average American, the down payment on a house and other costs associated with buying will wipe out their savings account. MarketWatch argues that now is a dangerous time to be left without some extra cash.

“Given the recession and the fragile economy today … it’s wise to have a cushion to land on in the event you get hit with a financial broadside,” MarketWatch says.

You don’t want to end up needing payday loans in a financial emergency later because you spent your financial cushion.

Job insecurity

We have all seen the headlines every day announcing big layoffs at big companies as well as smaller ones. Perhaps you feel secure in your job because you are protected by a union contract or because the company you work for is doing well financially.

However, union contracts can change. As the recession deepens, more companies are being affected every day. Buying a home is an extremely long-term commitment. At this point not even experts know where the economy will be in a year or two years or even five years. Having a mortgage to pay off is not an ideal situation to be in if you lose your job.

Prices are still dropping

Home prices have been on the decline for some time now, but there is no sign of them leveling off yet. If you buy a home this year chances are it will depreciate even farther in value after you buy it. Granted, there is a good chance it will go back up later and you will end up making money in the long run. However, if you are looking at buying a home as an investment opportunity, it is best to wait  until prices are at their absolute lowest.

So don’t run out and get payday loans to cover your fees so you can shore up a mortgage; wait it out.