Approximately two-thirds of all Americans own their own home. The other one-third rent. Be it ever so humble, there’s no place like your own home!
With planning, the dream of home ownership is within reach of every motivated individual. By getting off the rental cycle you will make an investment for the future, put money into your pocket instead of your landlord’s, gain a valuable tax deduction, and most importantly, have a home of your own. First-time home buyers John and Cynthia Bates are a good example to follow as they prepare for their first home purchase. Here is their story:
Ever since John and Cynthia got married, they have dreamed of owning a gracious, white, center-hall colonial with French d
oors and a fireplace. “I can really picture it in my mind,” says Cynthia. “I can even imagine the kind of lawn there will be around it. I just know that we’re going to find exactly what we want when the time is right.”
Together John and Cynthia’s income is $60,000 a year, with Cynthia working part-time. “We’ve managed to save $7,000 towards a down payment”, says John “but with only a small savings and our credit card debt, we’re not sure how much mortgage we will be able to qualify for.”
IS BUYING THE RIGHT DECISION?
There are two very powerful incentives for owning a home: tax savings and equity build-up. In the United States, homeowners are allowed to deduct their mortgage interest and property tax payments from their taxable income. This can result in a considerable savings.
Secondly, payments applied toward your mortgage principal help build equity in your home. And it is also likely that your house will appreciate in value over the years you own it.
PREPARING FOR THE HOME PURCHASE
When John and Cynthia start investigating a home purchase, they will find that as a very general rule of thumb, they will qualify to buy a home that costs as much as three to 4 times their combined annual income, or about $200,000.
John and Cynthia have taken the first step of preparing for home ownership by starting to save for their down payment. Demonstrating the ability to save and having extra funds on hand helps enormously in the loan approval process.
UNDERSTANDING THE HOME BUYING PROCESS
To understand the home buying process you should meet with a smart, experienced Real Estate Agent and ask for their help. Ideally, you will want an agent who comes highly recommended and has a strong track record. As a buyer, hiring a professional Realtor normally doesn’t cost you anything and they will look out for your best interest throughout the entire home buying process. They can introduce you to a fantastic loan officer to be pre-qualified for a home loan.
Loan pre-qualification determines the loan amount you are likely to be approved for. A good loan officer will discuss with you your employment, income, assets, liabilities, tax returns and request a copy of your credit report. Getting pre-qualified for a loan is essential and should be one of your first steps. When you have received a copy of your credit report make sure it is accurate. Often times there are errors on credit reports and some errors take a long time to correct. If there are errors or things that need to be done to qualify for a loan, a good loan officer will tell you what you need to do to raise your credit score or what needs to be done so you will qualify for a loan.
FINANCING AND DOWN PAYMENT ASSISTANCE
The amount needed for a down payment and closing costs has always been the primary barrier to home ownership. There are many loan products to choose from. In many areas there are $0 down payment loans available. Often times the seller is willing to pay your closing costs. There are other loan options that allow the buyer to include the closing costs with the loan or interest rate so the buyer does not need to pay for the closing costs upfront.
If you are considering buying a home along the Wasatch Front, call me and I’ll be happy to do a no cost no obligation consultation to help you understand the home buying process and start you on the path of home ownership. If you are looking to buy a home elsewhere I can still help. I know what makes a good agent and will interview agents in your area for you. I’ve done this for others all around the country and they’ve been very grateful for my help.