Your Utah Real
Estate-Online 24-7 Realtor
Principal Realty Group
REPORT #1
Thinking About Buying Your First Home?.. With
interest rates low, many renters are starting to think about purchasing
a home of their own. While simple rental cost vs. mortgage cost comparisons
can be very attractive, buying a home is a serious commitment, and
there are many factors to consider:
How long you plan to live in the home? Selling a home costs money.
If you potentially may have to move in the short term, the value of
your home may not have appreciated enough to cover the costs of buying
and selling. The length of time that it will take to cover those costs
depends on various economic factors.
Average appreciation tends to sit at around 5% per year. In this case,
you should plan to stay in your home at least 3-4 years to cover buying
and selling costs. The real estate market can be particularly volatile,
however, and dramatic swings up and down are not uncommon.
How long the home will meet your needs. What features do you require
in a home to satisfy your lifestyle now? Five years from now? People
tend to remain in homes longer than they initially intend, primarily
due to the work and expense associated with moving. Therefore it is
worth considering a home with room to grow.
Could the basement be turned into a den and extra bedrooms? Could
the attic be turned into a master suite? Having an idea of what you'll
need will help you find a home that will satisfy you for years to
come.
Your financial health - your credit and home affordability. Is now
the right time financially for you to buy a home? Would you rate your
financial picture as healthy? Is your credit good? While you can always
find a lender to lend you money, people with poor credit tend to pay
far more to borrow.
Some say that you should refrain from borrowing as much as you qualify
for because it is wiser not to stretch your financial boundaries.
The other school of thought says you should stretch to buy as much
home as you can afford, because with regular pay raises and increased
earning potential, the big payment today will seem like less of a
payment tomorrow. It is, however, important to stay within your comfort
zone.
Purchasing a house involves many up-front and ongoing costs, and the
stress of worrying about those costs often outweighs the satisfaction
that may come from owning a slightly nicer home. To determine how
much home you can afford, talk to a lender or go online and use a
home affordability calculator. Good calculators will give you a range
of what you may qualify for. Then call a lender. While some may say
that the "28/36" rule applies, in today's home mortgage market, lenders
are making loans customized to a particular person's situation.
The "28/36" rule means that your monthly housing costs can't exceed
28 percent of your income and your total debt load can't exceed 36
percent of your total monthly income. Depending on your assets, credit
history, job potential, and other factors, lenders can push the ratios
up to 40-60% or higher.
While we're not advocating you purchase a home utilizing the higher
ratios, it's important for you to know your options. Where the money
for the transaction will come from. Typically, homebuyers will need
some money for a down payment and closing costs. However, with today's
broad range of loan options, having a lot of money saved for a down
payment is not always necessary - if you can prove that you are a
good financial risk for a lender.
If your credit isn't stellar but you have managed to save 10-20% for
a down payment, you will still appear to be a very good financial
risk to a lender. High-ratio mortgages can be a good option for those
who haven't managed to save a large chunk of money (who has?), but
naturally, these have additional costs associated with them.
The ongoing costs of home ownership. Maintenance, improvements, taxes,
and insurance are all costs that are added to a monthly house payment.
If you buy a condominium or townhouse, a monthly homeowner's association
or maintenance fee will be required.
If these additional costs are a concern, you can make choices to lower
or avoid these fees. Be sure to make your RealtorŪ and your lender
aware of your desire to limit these costs. If you are still unsure
if you should buy a home after making these considerations, you may
want to consult with an accountant or financial planner to help you
assess how a home purchase fits into your overall financial goals.
