Buying Your First Home
Buy vs Rent – It’s more than a financial investment
Home ownership is the cornerstone of the American Dream and there is no denying it may be the best financial investment you will make.
But, will owning a home meet your lifestyle needs, Now?
What’s your dream lifestyle?
Do you see yourself playing with the kids in the yard on Saturday?
Or are you the type who likes to pack up and head to the beach each weekend?
Would you like to live in a place that’s truly yours or are you happy with the quality of rental units available?
If you decide to become a homeowner for the first time, your house payment may be more than you’re paying for rent. Will you be willing to make the lifestyle sacrifices, so you can afford the additional $100 or $200 per month?
You have probably seen the many Buy vs Rent calculators available on the Internet, and you know what? Financially Buy wins everytime.
Here are some thoughts on when Renting is Better and when Buying is Better.
When Renting is Better
Any real estate professional can give you a number of reasons why it makes sense to buy a house. Just like everything else, IT DEPENDS on who and where YOU are in your life as well as career.
Even though your friends and family may be telling you to settle down and buy a home, there are actually times and circumstances when renting might be a better idea.
Of course as your life, changes so will the answer to the rent vs buy question.
Will you put in the time?
In any investment, there’s no such thing as a sure thing. What usually makes real estate a better risk than most is time. The longer you are prepared to commit to your first home, the more likely your chances of seeing it increase in value.
During the last boom, too many people bought with the expectation they could turn a tidy profit in just a few months or a year. The market changed and their home declined in value (because they bought at the top) and now they are faced with the reality of trying to sell a property before it has appreciated enough to cover the costs and commissions.
Many First Time Home Buyers bought with little or no down payment and now are facing the prospect of paying Real Estate commissions and closings costs out of their own funds. Doesn’t sound pleasant, does it?
Will you like the neighborhood?
The first rule of Real Estate is Location, Location, Location! The good news is in today’s market a First Time Home Buyer has more choices of neighborhoods than even one year ago.
If you are going to be living in a neighborhood for a few years, make sure it fits your wants, needs and goals.
Research suggests you take ample time to get to know the neighborhood before investing your money in a house and a neighborhood.
Many First Time Home Buyers find themselves relocating and because of the potential difference in housing prices, choose the wrong neighborhood because all they see is “I get so much more for my money here than in (pick one – L.A., Chicago, New York, etc).”
A Certified First Time Homebuyer Realtor® specialist will help you find the right neighborhood and provide all the information necessary; i.e. schools, transportation, shopping, etc.
Will you keep all your commitments?
We’re not just talking about financial commitments. When you buy a home, you are entering into a contract to repay the lender for a period of time. If you’re not ready to take on that obligation, think twice.
Make sure you are buying for the right reasons!
Many First Time Home Buyers, spurred on perhaps by the notion of starting a new relationship which will be cemented in their new home are often forced to sell sooner than expected when those relationship plans don’t work out as expected.
Unfortunately, when plans don’t work out, both partners suffer the indignity of try to sell the property before it has had a chance to appreciate or worse staring foreclosure in the face.
Losing money this way does nothing to help an already difficult situation. If you and your partner have any doubts, experts say it’s not the time to make a major investment.
Will you be happy giving up the freedom?
Initially at least, renting is less financial pressure than buying. Paying a first and last deposit doesn’t compare to the chunk of change required for a down payment on a house. Though, in today’s market, with the low down payment loans and down payment assistance available the difference isn’t as big as it used to be.
Renting gives you the freedom to move around without having to wait for a house to sell. Renting is lower risk, because if you need a new range or microwave, you call the landlord.
Even though rents tend to increase by 3 percent a year, unexpected maintenance costs or property tax hikes aren’t part of your monthly bill.
When Buying is Better
Does shelling out that rent payment each month bug you? Over the course of five or seven years you will pay enough in rent to buy some homes.
Hate the thought of a 30 YEAR mortgage?
Consider this!
The fact is, over the long term, building equity in your own property is far smarter than financing someone else’s. A fixed rate mortgage also locks in your monthly rate so you know that whatever your payment is, at least it will stay the same for thirty years.
Rent, on the other hand, has the nasty habit of increasing every year. If you’re already struggling to meet today’s exorbitant rents in major metropolitan areas, imagine what they’ll be like 10 or 15 years from now. Check out our Free Report about how the Housing Crisis is affecting Renters at http://www,homebuyerhelpnetwork.com
Tax Breaks
Probably the best reason of all to consider buying a house is the tax break. As the tax code is structured now, interest on your home mortgage is tax deductible as are property taxes. With rent, that’s money down the drain.
It’s as though Uncle Sam is actually helping pay for the house you buy. In fact the IRS even has a tool to help you adjust your federal withholding to soften the impact of a higher house payment. You can calculate your federal withholding benefit at www.irs.gov . The recently passed $8000 tax credit, which expires on December 1, 2009 is like receiving a “mail-in” rebate from Uncle Sam.
When it comes time to sell, homeowners can benefit from tax-free profits on the sale of their primary residence, up to $500,000, (if they are married and filing jointly and have occupied the home for two of the last five years, Homeowners who are single or married filing separately, can enjoy tax-free profits up to $250,000.
Three-Bedroom Savings Account
Have you ever wondered why credit card applications and auto loans ask if you rent or own?
In the eyes of the banking community owning a house is considered a major savings asset.
Almost all First Time Home Buyer loan programs require principal and interest payments. A portion of every mortgage payment goes toward the principal, (not a lot in the early years but it gets better over time), so the homeowner is building equity. In addition, historically home values have appreciated at an average of 5% per year. This varies from time to time and especially from market to market.
So, even as your debt to the mortgage company remains constant, what you get when you sell the house doesn’t.
There are many ways to maximize the appreciation in your home, but let’s get you in the right home first.
Generally, buying a home is considered a secure investment because prices usually don’t go down, unless you bought at the top of the market, or next to a nuclear power plant. The longer you put off buying a house, the longer you’ll miss out on appreciation, and the opportunity to build equity instead of wasting money on rent.
How much longer do you want to pay Uncle Sam more than you need to?
Personal Freedom
Aside from the money, owning a home brings freedom to create your own personal space without limits set by a landlord. When you think about it, a rental isn’t really your home, it’s someone else’s on loan and they probably won’t agree that the bathroom looks cool painted deep purple. Nor is a landlord likely to pay for such personal touches and why should you if you’re only renting? Take in an episode of House Hunters on HGTV and witness the transformation you see when a First Time Home Buyer get’s to express their individuality in their new home.
Thanks to Audrey Arkins, Salary.com contributor
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