HOW TO BUY A HOME IN TODAY’S MARKET
Some buyers today have had their desire to buy dampened because they think they can’t. In fact, today’s market offers a unique opportunity to save by buying now. First of all, properties are available now below the average market price, with selections through all price ranges for starter homes, buy-up houses, executive properties and luxury estates. Today is a good time to start shopping for your dream home.
Also, lenders are offering attractive rates and innovative financing, such as buy-downs and various adjustable loans. That means your same income can qualify for more home today. Buyer’s who act now not only can take advantage of today’s market; they also can begin to benefit from the Big Four wealth builders of home ownership.
FOUR WEALTH BUILDERS
Leverage. Leverage means using borrowed money (OPM: Other People’s Money) to control a property and receive its benefits. Here’s how leverage works. Say you’ve acquired a $100,000 house with only a 10% down-payment ($10,000). Suppose the property appreciates 10% in the first year and the house is worth $110,000. You’ve “earned” $10,000 on your investment of $10,000- a profit of 100% in a year. (Financing costs would, of course, lower the net yield.) That’s leverage-a big return by using borrowed money.
If home prices rise only 3% a year in the next decade, the home you bought this year for $100,000 would be worth $134,392 in ten years. With $10,000 down, you’d realize a 334% profit. If prices rise 5% a year, you’d profit 629%; at 8% a year, you’d profit 1, 159% due to your leveraged purchase.
Tax Breaks. You’ll also realize saving from the tax advantages of homeownership. A home owner’s taxable income is reduced by tax deductions (for interest payments, points and real estate taxes where applicable). Later, any gain you realize at sale gets special treatment, and you can put off paying taxes if you buy a home for at least as much as you got for the old one. When you’re over 55, you get one-time exemption that lets you sell your home and keep $125,000 in profits, tax free.
Savings. Mortgage principal payments go into your own pocket, not someone else’s. You’re saving and building equity as you pay for a home that’s appreciating in value. (The amount of appreciation depends on inflation, the local economy and whatever home improvements you make.) But there are fewer appreciation windfalls in today’s market. You must buy wisely. Not all properties in all locations will give you the top-dollar investment return you want. My up-to-the-minute market research will help you buy smart.
Owner Pride. The fourth pillar of home owning involves, of course, many things besides keeping a roof over your heard. You acquire, along with a structure, the responsibility for maintenance and repair. Most homeowners find the benefits of owning far outweigh the upkeep efforts- and many homeowners enjoy the work. You also put down roots and become more involved in the community. In short, you own an investment that builds intangible riches while you lock in your housing costs and avoid unpredictable rent hikes.
HOW YOU CAN BUY
Here are six ways buyers can take advantage of today’s real estate market.
Be Realistic. Set your sights realistically; don’t expect to move directly into your dream home in the most expensive part of town. Get a toe in the homeownership door by buying a modest place, modestly priced-in a good location. Improve your home as you can afford to; and/or let your equity build to help you buy the dream house in the dream location later.
Closing Cost Help. If you haven’t been able to save for a downpayment and closing costs, consider:
· Negotiating a gift, loan or shared-equity arrangement with parents or other people looking for a good investment.
· Selling something of value-with the realization that you’ll be able to replace it later.
· Financing the closing costs, if your lender agrees.
· Using a tax refund.
· Borrowing on your life insurance or securities.
Pre-Qualify. “Pre-Qualify” yourself as a borrower by calculating what price home you can afford. Generally (depending on lender and type of financing) lenders consider your total basic monthly affordable housing cost-including mortgage principle and interest payments, real estate taxes and insurance payment. Your affordability is based on 25% to 28% of your gross monthly income. Or, with additional long-term debts included, the ratio is 33% to 36%. Remember: Some lenders extended these limits, based on their assessment of your financial situation and the loan plan you select. As a pre-qualified buyer, you’ll have an advantage over other buyers who aren’t, when sellers consider your purchase offer.
Innovative Financing. Get acquainted with the various kinds of loans available: fixed rate, adjustable rate, government-backed loans (FHS & VA), assumptions, buydowns, blended loans, seller takebacks, and more. (Terms and interest rates vary considerably—among loans and among lenders; these factors, along with your income and length-of-ownership expectations, must be weighed—and I’m here to help you do that.) FHA loans, for example, allow first-time buyers to put as little as 3-10% down, depending on the price of the home. Housing costs can’t be more that 29% of pretax monthly income. Housing plus other debt can’t be more than 41%. These are generous standards compared to conventional financing, which means your buying power is increased. Ask me about loan ceilings.
Shop For A Lender. Of Course, You want the best terms you can find. If you run into inflexible qualification requirements, don’t be discouraged. Some lenders are simply tougher than others. In general, look for these characteristics in a lender:
· Ability to explain loan programs plainly and simply.
· Capability of getting your loan processed quickly.
Consult a Professional. There are more details involved in buying a home that I have room to outline here. If these basics seem appealing, let me help you understand the home-buying process. I hope you’ll give me a call.
How Uncle Sam Puts Money in the Pockets of Homebuyers
John and Jane have a combined income of $50,000 a year. They purchased a home for $150,000, putting 10% down and financing the remaining $135,000 with a 30-year, 8% mortgage. Their monthly principal and interest payments amount to $991 a month. Here’s how the value of tax deductions will save them cash in the first year and years to come, based on 1993 tax rates.