Considerations when Home Buying.

Considerations When Home Buying

What To Consider When Home Buying.

When it comes to when you want to buy a home there are several things to consider. If you are contemplating buying a home, you should know and review the advantages and disadvantages of this big step you are about to embark on. As a long term investment, it’s great to buy a home. It’s a great financial decision.

On an average, homeowners see roughly a 7% growth annually. In my opinion, buying a home is not a very good short-term investment because you’re going to pay anywhere from 2% to 5% of the purchase price, be sure to understand your closing costs.  Consider a home investment as a long term asset that gains equity over a period of time.

The main reason why I believe home ownership is a good long term investment is that the longer you keep the asset (house) in good standing, you’re building equity. As you also pay off the mortgage on the property, your building equity as well. With less of your payment going solely on the interest of the loan but toward the actual price of the loan.

Some experts suggest habituating the home for at least 5 years to see an ROI. But if you’re going into real estate ownership to build wealth using this formula, there are a few things to consider while making this decision.

  • Your Home is not an Asset

Assets are things which generate cash flow for you, while liabilities generate expenses, or negative cash flow. I’m sure you’ve heard that houses are assets because property values gradually appreciate over a period of time. In reality though, the only time your home will become an asset is when you decide to put the property up for sale.

Yes, you’re building equity by living in the home and paying the mortgage on the property. But, every month it’s something that takes money from you, not put money in it. Only when you can sell the property does it become an asset.

While owning the house, you have to pay for all the repairs needed to keep the home in good standing. So naturally, the longer you own the property, the more you’re going to spend on it for repairs. Not to mention the mortgage, HOA fees, renovations, general lawn care, utilities, home owner’s insurance and of course taxes. These are just some of the responsibilities associated with home ownership.

Here’s an interesting, realistic ideal situation regarding home ownership. Say you purchased a house 15 years ago for $200,000. You may be able to sell it today for $400,000. You’ve financed the whole amount with a 6% APR loan for 30 years. You will have spent $157,936 on interest and $57,902 on the principal of your loan for a total of $215,838. Plus, you still owe $142,098 to pay off the bank. Now look at the total when you add all of your other monthly expenses into the equation.

Even if you were able to sell the property for the purchase price. You would still be in the hole considering inflation and time value of your investment. The money you invested then doesn’t have the same purchasing power as it does fifteen years later. Your home is an asset, but your mortgage is the liability. Because a mortgage is debt, you’ll need to pay it off before your home is really considered an asset. Because you’re not paying for it monthly. The only expenses are the costs of operating the home and taxes.

Selling your home has advantages as well. Once being, a profit from your investment. Unfortunately, there’s a tax involved with selling you home. It’s called capital gains tax. Capital gains tax is a fee that you pay to the government when you are selling your home, or anything else of value, for more than you invested in it.

There are two types of capital gains tax associated with real estate; they’re called “Short-term gain and Long-term gains”. Short term gains are when you pay taxes on property owned for less than a year. These are generally higher because they are taxed at the same rate as ordinary income. Long term gains are when you hold the property longer than a year before deciding to sell a home. You’ll get a benefit of a reduced tax rate that usually doesn’t exceed 20%.

 

Buying a home is a great decision if you’re thinking long term. The longer you live in it, the more benefits you’ll be rewarded. For one, every time you pay your mortgage note, you’re building equity, which creates a higher value. Two, you’ll experience better tax benefits in the longer term whenever you decide to sell a home. In conclusion, think long term buying a home.

condo vs single family home

Should You Buy a Condo or Single Family Home?

People have hundreds of choices to make once they have decided to buy their first home.  Many people have a hard time deciding on which real estate they should buy. Condominiums obviously have a lot of advantages. However, many people are still interested in single family homes. Home buying is difficult at the best of times. The global real estate market has never truly recovered, and home buying will continue to be difficult for most people.

The Bigger Picture of Home Buying

However, people who are considering the benefits associated with a condo should trust their first instinct in many cases. Purchasing a condominium will make sense for a lot of people. Then again, there are clear sacrifices associated with choosing a condominium over a single family home, and this is something that people should also note in advance.

Pros and Cons

For one thing, many people like the opportunities associated with redecorating and remodeling their own homes. While it is possible to redecorate a condo to a certain extent, the condo association is often going to strictly limit people when it comes to what they can and cannot do with their own homes.

Some people enjoy working in their yards, and this is something that is really only possible for the people who are living in single family homes. Condos can have pleasant surrounding grounds, and the condo association will hire people who will keep those grounds in good shape. For some people, this is a good thing. Other people might enjoy designing their own exterior landscapes, and that can be a problem with condo living.

For many people, it’s still all going to come down to costs. People will usually spend more on a single family home than they will ever spend on a condominium,and it’s hard to get around that. It is true that a single family home is an investment, but that is also the case for a condo.

People might end up making fewer sacrifices financially when they purchase a condominium, and that can make a huge difference for everyone involved. Insurance is also an issue, and the condo association will usually take care of the insurance connected to the condo’s exterior.  Make sure to read through the condo documents to understand exactly what is and what is not covered by your condominiums insurance policy.

It should be noted that there are advantages associated with both types of property. After all, both of these properties are important investments that people will be able to enjoy for a long time. A condo will always be worth something, and so will a single family home.

Some people are just not going to need the space associated with a single family home anyway, and they won’t miss it when they decide to move into a condo. The low-maintenance nature of a condo will really make it perfect for everyone involved, especially for the people who are nervous about home buying in the first place.

Raising a family in a condo is often more difficult, especially because the people who live in condos have a tendency to make more complaints about noise. People will often have more privacy in larger single family homes, and that can make all the difference in the world for the people who are trying to live peacefully with their families. However, this just might not make much of a difference for other people. There are fewer burdens associated with owning and living in a condo, and that can be enough for many of the people involved.

understanding closing costs

Understanding Closing Costs

 

Closing costs are part of any home buying experience.  Although closing costs exist on every real estate transaction, underestimating the amount of closing costs is a common mistake for first time home buyers .

Understanding Closing Costs When Buying your New Home

Closing costs are essentially out of pocket charges that are incurred at the time of closing. These assessed fees are the last step in securing timely home ownership across the board. Usually, closing costs include pre-paid homeowners insurance and appraisal costs.

However, they can also include charges by the mortgage company for implementing the mortgage itself. Similarly, pre-paid interest – known as “points” – may also be assessed during closing time. Other fees may include title insurance, along with filing fees, attorney fees, recording fees and miscellaneous expenses.

 

Avoid Issues with Closing Costs

One of the best ways to avoid closing cost issues is by paying close attention to every detail. You simply cannot afford to get caught off guard at closing. This can result in costly delays, and possibly even turn you away from the deal altogether. With this in mind, is it vital to request an advanced copy of the HUD 1 settlement. This should be done at least three days prior to closing on your new homes. The HUD is designed to protect you during the closing process, and not worry about surprise fees on closing day. Here are some essentials you should keep in mind:

•    Review the entire closing agreement – or let your attorney review it in close detail.
•    Check all the closing costs and figures to make sure they are 100% correct.  Point out any discrepancies or issues with credit or closing costs – and handle them ASAP.
•    Stay on top of all buyer-seller- agent communications across the board. Make sure to include your lender and attorney in the loop as well.
•    Make sure to keep hard copies of the HUD agreement on hand before, during and even after closing.
•    Make sure everyone in the loop is on the same page -and correct any errors or issues that can potentially cause delays.

 

Schedule a Final Walk Through

 

final walk throughAnother way to avoid problems with closing costs is scheduling an final walk-through. This, of course, has to be done before closing day so you can check the home thoroughly. If you find any issues – you must notify the seller, agent or attorney at once. Remember, closing costs are governed by enforceable contracts – but all parties must be in agreement across the board.

This contract also includes any legal or governing bodies – especially HUD-related rules and regulations. If you do not want to delay your closing day, all closing costs must be taken care of beforehand as well. Again, make sure every penny is accounted for on the contract – and always take photos of your bills and receipts.

You also need a detailed checklist of what was supposed to remain the property – and what was to be taken. For example: if the fixtures were supposed to remain but a few are missing, early inspections can rectify the situations before they escalate and lead you to walk out on the deal.