Why You Should Buy a Home

June is National Homeownership Month. Many Americans lost their homes during the recession and some have not fully recovered or do not desire to become homeowners again.  When owning a home you need to create a budget to help manage your finances and debt to make sure you can stay in your home for as long as you like and reduce the chances of filing for bankruptcy or foreclosure.  

Before you buy a home you need to prepare for the home buying process. Estimate your monthly mortgage payment. Subtract the difference of the estimated monthly mortgage payment and your current rent (if you pay rent).  The first month add $100 to a savings account.  The second month add $200 to the savings account, the third month add $300 and keep doing this until you save the entire amount of the difference from what you currently pay for rent and your estimated monthly mortgage payment. 

This will ease the burden of having to adjust to paying your first mortgage payment because you will have already budgeted your money to accommodate for the mortgage payment.   Your mortgage payment should be no more than 38% of your total monthly income.  This will ensure that you do not live above your means and hopefully have extra cash to pay for unexpected expenses and plan for retirement. The advantages of buying a home are:

1.      Build equity

2.      Generate wealth

3.      Access to equity for unexpected expenses

4.      Tax benefits

5.      Access to protection such as insurance and warranties

The disadvantages of buying a home are:

1.      Maintenance costs

2.      Increase in payments due to insurance or tax increases

3.      Insurance and tax payments

4.      Protection costs for insurance and warranties

Here are 9 tips to help prepare you for buying a home:

Step 1. Know Your Limit. The amount of home (sale prices) you can afford depends on your income, credit rating, current monthly expenses, down payment and the interest rate.  There are many options for owning a home such as:  buying a condo, townhome or single family home.

 

Step 2. Know your rights. There are several government acts that protect borrowers’ rights.  The Fair Housing Equal Opportunity for All act prohibits discrimination and intimidation of people in their homes, apartment buildings, condominiums and all housing transactions including rentals and sales. 

The Real Estate Settlement Procedures Act (RESPA) act relates to closing costs and settlement procedures. The act requires consumers receive disclosures during the home buying process and outlaws kickbacks.

 

Step 3: Shop for a loan. Save money by doing your homework. Talk to several lenders, compare costs and interest rates and negotiate to get the best deal possible. To show you are a serious buyer and to have a competitive edge over other buyers get pre-approved for a loan and use the pre-approval letter when shopping for a home.  Shop around with several lenders and get at least 4 quotes on loans to make sure you are getting the best price and terms. Contact a loan officer or mortgage lender instead of a broker to assist you with buying a home.  Ask for a list of current mortgage interest rates, if the rate is fixed or variable and the loan’s annual percentage rate (APR) which includes the interest rate as well as points on the mortgage loan and may include broker or lender fees. 

Step 4. Use programs. Several companies offer home buying programs such as Home Free and NACA as well as state governments to assist with down payment and closing costs.  Visit www.hud.gov/buying/localbuying.cfm to find home buying programs in your state. 

 

Step 5. Look for a home. Check the crime statistics, quality of schools, location of police and fire department, grocery stores and pharmacy when looking to purchase a home. Select a real estate agent and make a list of items and features you wish to have in the home.  Also ask if the home has lead paint.

 

Step 6. Make an offer. Work with your real estate agent to make an offer on the home you wish to buy. Make sure the real estate agent is working for you only and not working for you and the seller.  You need a real estate agent who has your best interest in mind.  

 

Step 7. Get a home inspection. Make your offer on the home you wish to buy dependent on a home inspection. Hire your own inspector who is unbiased and who will tell you the condition of the home (inside and out) and any potential problems that could happen in the near future.  Be sure to ask the inspector any questions that you may have or if you need further explanation.  Request a pest and lead inspection.

 

Step 8. Shop for homeowners insurance. All lenders require that you purchase homeowner’s insurance. Shop around to find the best deal possible.  Try to get a bundled package to include your car and home insurance to get discounts and ask what other discounts are available. 

 

Step 9. Settlement/Closing. Make sure you plan at least 2 hours in your schedule for the settlement.  Bring your Good Faith Estimate with you and compare fees – the fees will be different from the final paperwork but should not be too much more than the good faith estimate. Read all the settlement paperwork before signing it and don’t let the settlement attorney rush you. If there is a mistake on the form ask the settlement attorney to make the adjustment and give the forms back to you to sign during settlement.