Plain and simple, owning a home can improve your quality of life, provide stability and give you a sense of control you just can't get from renting. You have a place to live when you rent, but buying is something much deeper – and better.
The intangibles are tough to measure, but there are other benefits you can quantify:
Your monthly mortgage payment creates equity for you, not your landlord.
While this isn't a reason in itself to buy a home, it's nice to get a break at tax time.
If you opt for a fixed-rate mortgage, the monthly rate of your mortgage won't change for the length of the term.
When it's time to sell your home, you don’t pay taxes on the proceeds of the sale that are above what you paid (with some restrictions – see information on capital gains).
Your buyer's agent can offer advice on the countless items you should consider according to your lifestyle, budget and particulars.
For most people, finding the right home begins with a house-hunting strategy combining personal preferences, guidance from others (including an agent) and a mix of neighborhood exploring and online search.
For some, the search takes a while; others find what they want right away. In either case, your real estate agent can be a huge resource of insight and guidance, working through issues or complications that arise along the way.
Here’s a general outline of what to expect during a home purchase, from the buyer's perspective.
This is it! You've found the home of your dreams, looked over disclosure documents, reviewed comparable sales data, talked it over with your agent and submitted an offer. The sellers may accept your first offer, but more often will return a counteroffer. In fact, additional negotiations are common, and your agent will help you through this generally stressful stage.
Once everyone is happy with the terms, the parties have reached what is known as mutual acceptance and enter into a purchase and sale agreement.
To solidify your intent to buy, you'll place a deposit, or earnest money, on the property. The amount varies, but is generally at least 1 percent of the purchase price. You'll write the check to the escrow company, not the seller. Note: This money counts toward your down payment later.
The earnest money deposit goes into an escrow account, where all funds will be held until closing, when they are then distributed to the right people (lender, mortgage broker, title insurer, real estate agents, etc.).
This step is streamlined if you've already been preapproved for a loan (which is a smart thing to do). If not, you'll begin the loan application process now.
The lender needs key information about the property before granting a loan. This is when potential problems can come to light. For example, the appraisal could show a lower value than the purchase price, or the lender could have trouble finding comparable homes. Also, the title search could turn up liens or other problems.
You'll hire an inspector – generally, your agent will suggest one, or provide several options – to check the home and point out minor and major problems that should be fixed before closing. At this point, you still have the option of backing out of the deal. Through your agent, you'll submit a list of requested work, and the sellers have the option to complete the tasks, do some of them but not others, or reject the request. The sides will negotiate until reaching an agreement.
If the house passes inspection, appraisal and title search, and everything is good to go, then all contingencies can be removed, paving the way to a closing.
Once contingencies are removed and financing is set, all parties sign a seemingly endless stack of documents, and the transaction closes.
When the final signatures are in place, it’s time to put down the pens, shake hands, exchange smiles and start packing for the move!
Knowing how much you can afford to pay is a crucial step in your search. Nailing down your budget early will make the overall process more focused and less stressful.
The 28/36 rule is an established benchmark used by many lenders to determine how much credit to offer you. Here's how it works:
Get preapproved for a mortgage. Your lender can approve you for a certain to loan amount prior to your home search. This gives you a solid number against which you can assess the affordability of the houses you visit.
The "28" refers to the notion that no more than 28 percent of your gross monthly household income should go toward housing costs, which include mortgage principal, interest, taxes and insurance.
To calculate, simply multiply your gross monthly income (amount before taxes) by .28. Use this amount as a guide for how much house you can afford.
Example: You earn an annual salary of $70,000. Divide 70,000 by 12, giving you a monthly gross income of $5,833. Multiply that by .28, and you'll find you should spend no more than $1,633 each month on total housing costs.
The "36" part of the 28/36 rule refers to your overall debt, which shouldn't exceed 36 percent of your income. This is important to consider because other high monthly debt loads – such as car and credit card payments – impact the amount you can afford to spend on housing.
For first-time home buyers, the tricky part is knowing how much to budget for taxes and insurance. An experienced real estate professional can assist you with this.