Owning a home is the American dream. When it comes to real estate, conditions vary from town to town, and no national statistics can give you a clear picture of what’s happening in your neighborhood. Gauge local conditions, you want to know how many houses are for sale and how long the average house has been sitting on the market today vs. a year ago. There are several simple questions that you should ask yourself before buying a new house. These questions remain the same no matter what the real estate market is doing for the most part.
First and foremost, if you expect to move within three or four years, it rarely makes sense to buy. There are certain costs associated with selling. Most home owners rely on home appreciation to pay sales commissions to the buying and selling real estate brokers; to pay those costs and to provide the down payment and closing costs when they buy their next home. So buying a home when you expect to move before too long is a risk, especially in an uncertain market.
Usually, most buyers live in their new home an average of seven years or more. If that fits you, it almost always makes sense to buy rather than rent, in practically any market.
If you are thinking about delaying a purchase because you want to “time the market” to get the very best deal, that is almost impossible to do with precision. Even if you are in an area with declining market prices, the most knowledgeable experts cannot reliably anticipate the “bottom” of a real estate market. Right now, we’re in a buyers market. Some buyers are wondering if the prices of houses are going to fall further. They might — and they might not. Nevertheless, buyers are taking advantage of several aspects of the market that make it favorable to purchase: lower prices, low interest rates, seller contribution to closing costs, and free upgrades, such as finished basements, decks, and finer appointments.
If you aren’t an owner, you’re a renter. You don’t get to reduce your income taxes by itemizing deductions like property taxes and mortgage interest.
As a renter, you are limited on what changes you can make to your living quarters. As an owner, you can paint your living room purple or put in an apple green carpet. You can change light fixtures and landscape. You can create the ambiance that makes your home a comfortable place for you and your family. It’s your home, not a temporary place to sleep and eat until you do buy a home.
Interest rates are low right now. If you wait, interest rates could be higher. That means your monthly payment could be higher, too. No one can predict rates that far in the future.
The easiest way to accumulate wealth is through home ownership. Three out of four people have more equity in their home than assets in retirement plans, stocks, mutual funds, and savings. Though no one can guarantee your property will appreciate, over time it generally does. Over the long term, you can generally count on it. In the last five years, the median price of homes all across America has increased in value approximately 10% per year. Usually, it’s not quite that high.
Admittedly, there are some areas that had more rapid appreciation in recent years. Those markets may suffer from lower price-growth than the rest of the nation or region over the next couple of years.
To minimize the possibility of lower appreciation for your home, determine your price range. Then choose a neighborhood where your target price is in the lower tier of prices in that neighborhood. That way, your home has less vulnerability on the down side and the higher-priced homes will help pull you up during hot markets.
Also, try to steer away from homes on busy streets or homes that back to busy streets. Buy a house as close to the center of the tract as possible. Don’t buy houses across the street from a park or a school. Try to buy in a homogeneous area, where all the homes are similar to one another. For example, if you are buying a single family home, you do not want to buy next to an apartment or condominium complex.
Finally, talk to a real estate agent and ask for advice. Ask them what the market is like in your area.
Right now, home inventory is high. There are many sellers. If you make an offer, ask for incentives to buy that particular home.
If you are putting ten percent down or more, you can ask for up to six percent of the purchase price in incentives. These incentives cannot be rebates of cash or help with down payment, but you can ask the seller to pay your closing costs. You can also ask the seller to pay for a temporary interest rate “buydown” that lowers your payment over the first one to three years and still gets you the security of a fixed rate mortgage — and fixed rates are low right now.
If you’re putting down five percent or less, you can still ask for incentives. The amount you can ask for is limited to three percent of the purchase price. The reason there are limits is because you are going to finance the purchase with a mortgage and lenders have guidelines on how much sellers can provide in incentives. Those guidelines help them limit loan fraud.
Talk to a real estate agent. Have that agent recommend a lender who will talk to you about incentives and explain what you can request.
When you are thinking of buying a home, it is a good idea to focus on a homes resale value. Carefully choosing your community is the first step in “location, location, location” and can help maximize your future potential resale value.