It is not uncommon for someone to have a dream of owning a home or perhaps buying a different home. This would be an important financial decision. So e have invited Jeff Romine, partner, with the Financial Planners of Missouri, to discuss buying a home.
Question: When should a person start thinking about buying a home?
Answer: The right time to buy a home can occur at a different time for each individual and/or couple. I would suggest someone hold off on buying a home until they are confident they will live in the same community for several years, say 3 or more, and that they have their financial act together. This would mean they should have no major credit card or other debt and they should have been saving some money for some time. At a minimum they should have have saved enough for a down payment, hopefully a 20% down payment. Also, they should be ready to take on the additional responsibility of home ownership.
Question: What are some of the things that a potential home buyer would need to consider?
Answer: The first thing they should consider is whether they have the time to do their homework. It is going to take some time to become knowledgible about the local housing market. Then they will need to consider how much can they afford. You can start with the rules of thumb that you can consider a home that costs two and a half times your annual salary. However, people usually require a mortgage, so the ability to make your mortgage payment, pay for insurance, and pay your property taxes will probably determine the size of home you can afford.
You will want to shop around and compare the mortgage rates and terms that various lenders offer. When you find the right lender, find out how you can prequalify or get preapproval for a loan. This can give you guidance on the price range you are looking at.
We suggest that you investigate 30 year fixed interest rate loans. This typically results in a low monthly payment. When possible you can always make larger payments.
Question: How do you find the right home?
Answer: I would suggest that you consider using a real estate agent or a broker. They can guide you through the process of buying a home which is especially helpful to a first-time home buyer.
To help choose the right home, I would suggest that, before you begin looking at houses, you decide what features that you want your home to have. This will help you in your search. What is important to you? Is it location, quality of construction, style of home, lot size, number of bedrooms, or proximity to shopping, parks, schools, or work. Itâ??s a good idea to shop around and look at many houses to develop a sense of what is available and the prices of homes in your community.
Question: What if I have found the right home, what happens next?
This is when the process gets interesting. If you have found a home that you would like to buy, the negotiations begin. The process typically begins by you making an offer. I would suggest that you use a real estate agent at this stage to help you prepare a written offer that contains how much you are willing to pay and the conditions that exist. The agent will then see that the offer is delivered to the seller. Then the seller may react. The seller may accept the offer, decline it, or counter your offer with a different price and perhaps a different condition. If a counter-offer has been delivered to you, you will need to decide what you want to do. You may want to walk away, accept the offer, or make a different offer. This can go through several cycles and there are many things to consider during this process. You need to remember that your are creating a legal contract. You may need to make a deposit to show you are earnest.
Question: Are their some tax benefits to home ownership?
Answer: Yes home ownership has some tax ramifications. Of course you would want to speak with your tax professional for tax advice on your specific instance. There are two tax topics that a new home owner may experience for the first time. You may be able to deduct any mortgage interest that you pay. Also you may be able to deduct your real estate taxes. In both instances you would be itemizing your deductions and using Schedule A with your 1040. All homeowners do not itemize their deductions, you would want to investigate this for your specific case.
Jeff Romine, Ph.D., CPA, Investment Advisor Representative
Financial Planners of Missouri
110 S. Franklin
Kirksville, Mo. 63501