Welcome to my first blog post! This has been a long time coming, and I'm excited to finally be bringing you the thoughts and ideas that have been playing on my mind. Because I work with a ton of homebuyers, I decided to dedicate my first post to the often confusing and terrifying topic of purchasing a home. So what do you need to know?
Should I Rent or Buy?
If you feel comfortable with your location (ready to put down roots) and financial situation, buying a home can be a smart move. A home can be a built-in savings account since you build equity with each mortgage payment you make! Assuming your home value increases over time, you will see a return on your investment.
On the other hand, renting is a good option for someone that isn't ready to commit to their current location. Although your rent check will go towards your landlord's equity as opposed to your own, you will be spared the additional costs of property taxes, loan interest, insurance, maintenance and other costs of homeownership. You will also be able to relocate more easily.
Can I Afford to Buy?
According to the experts and in general terms, you can afford a home that costs three to four times your annual income and a mortgage payment of less than 28% of your monthly income. However, you'll also need to factor in any debts and savings goals you have. It's best to meet with a lender prior to beginning a home search to better evaluate your financial situation and figure out what you can truly, comfortably afford. They'll be able to tell you either that you are ready to go find a house to buy or they will give you specific items to work on, such as paying off debt, saving more for a downpayment, or improving your credit score.
Act Like a Detective
Online research sites are at your fingertips at all times and can allow you to preview home listings in an instant and can give you a good sense of what is available within your target area and criteria. You can find out information about a home's walkability score, check out the neighbors and surrounding area on Google Earth, and visit government sites for information on taxes, parks, schools and crime rates. Study the area and drive through the neighborhood at various times and on different days to get a sense of traffic, noise and activity.
Comps - Comparables, or "comps," refer to the prices that homes of similar size, location, and conditions have recently sold for. You and your agent can use this data to help determine a reasonable offer.
PMI - Private mortgage insurance is required with a down payment for less than 20 percent. It protects the lender and usually costs $30 to $70 a month on ever $100,000 borrowed. One you hit 20% equity, you can cancel PMI.
Closing Costs - Payments for things like appraisals, title and escrow fees, loan origination fees and tax reserves. It usually totals 2-5% of the home's purchase price.
Equity - The current market value of your home minus what you owe on your mortgage. Over time, the equity grows as you pay down your mortgage and the home appreciates in value.
Of course there are many other things to consider when buying a home and I'd be happy to discuss your specific scenario with you!