Buying a Home-One of Life's Great Adventures
Owning your own home is the true American Dream for many adults. It's not only a status symbol, but it means you no longer have to pay monthly rent payments and have nothing to show for it. When it's your home, you can paint your walls any color you want, turn your music up as loud as you want, and when you leave, you can sell it to recoup the purchase price, and -with any luck-earn a profit. So yes, it does sound like a dream, but don't kid yourself. Along with the advantages of owning your own home, there are disadvantages, responsibilities and sometimes even headaches.
Since a new home is probably the largest purchase and commitment you will ever make, before you do anything else, look at your lifestyle and finances to determine if buying a home is the SMART move for you to make. Unless the real estate market is booming, it usually doesn't make sense to buy a home you'll own for less than 3-4 years. The reason for this is the high transaction cost of buying and selling property means you could lose money on the deal. If you do make money, you'll pay capital gains taxes if you're in the home less than 2 years. You also should consider whether it costs more, on average, to rent or own in your area. The rule of thumb is that if you pay 35% less in rent than you would for owning, including the monthly mortgage, property taxes, and any homeowner's fees, then it's smarter to continue renting.
Three Major Home Buying Mistakes
Taken from Your Guide to Home Buying by Elizabeth Weintraub
Not every mistake in a real estate transaction can be reversed, much less fixed before closing. If buyers goof up and make an innocent mistake, they might very well be stuck with the consequences for a long time or, worse, their deal might not even close. The following will help you avoid three of the major home buying mistakes:
1. Refusing to confide in a trusted advisor
This advisor could be your real estate lawyer or agent. Buyers withhold information for a variety of reasons such as: a) Fear of how they will be perceived. b) Irrational belief they have all the answers. c) Don't feel it is important enough. Experienced real estate professionals handle such a multitude of transactions and personality mixes, there's little they haven't heard before. But you only hurt yourself if you hold back because your advisors are representing your best interests and have a fiduciary responsibility to do so. They can't help you if they don't know what you are doing behind their backs. Plus, they will likely have a better idea for you than you can dredge up.
If you have cold feet and have thoughts about backing out of the transaction, talk to your agent about those feelings. They can help walk you through the anxieties. Pros will help you to determine if you really need to cancel, and if so, manage the transaction so you can get your earnest money deposit back.
2. Altering Financial Pictures Prior to Closing
Today's home buyers often make the mistake of making a major purchase in between the time they have been qualified for the mortgage and the closing. This alters the ratios and could mean they no longer qualify! To avoid this, do not buy anything on credit and/or with a credit card once you have completed a loan application. Especially do NOT buy: Automobiles, washers, dryers, refrigerators, lawnmowers or garden equipment, expensive electronics or computers, or furniture for your new home. Even slight alterations in your credit ratios could cause an underwriter to throw out your loan and deny it. And if your loan contingency has expired or been removed, you could forfeit your earnest money deposit in addition to losing the home.
3. Buying the Wrong House
The very first thing home buyers should do is to make a list of priorities and define home purchase objectives. Figure out what features and benefits are most important and which you can live without. Before you close escrow, review this list. It's easy to overlook a major factor that could come back to haunt you later.
Here's a perfect example: A buyer looking for a home in a midtown neighborhood of Denver, found herself swept up in the excitement of buying a home that was a bit less than she actually needed. She convinced herself that having one bathroom was suitable, but discovered shortly after closing that sharing a bath with two grown sons was impossible. It caused her so much tension and strain that she sold less than a year later. It cost her money to sell and more money to buy a two-bathroom home in another neighborhood. If the market had been depressed or if it had been a buyer's market, she could have lost everything instead of simply spending a lot more money than was necessary.
Give Yourself an Edge
Get pre-approved or pre-qualified and save yourself the grief of looking at houses you can't afford. Plus, it will also put you in a better position to make a serious offer when you do find the right house. However, there is a difference between the two:
- Pre-qualification - can be completed over the telephone by contacting our mortgage partner, Centennial Lending at 720.494.2740. They will help you determine what type of mortgage is right for you and determine how much of a mortgage you can qualify for based on your stated income, assets and liabilities you supply them over the phone.
- Pre-approval - is a formal mortgage application when you have not found the home you would like to purchase. You may apply online or call 720.494.2740 to make an appointment to talk with a loan officer who will complete an application for you.
To most, the pros of owning a home of your own far outweigh any cons. Over the years, real estate has consistently appreciated, plus, you have the advantage of tax breaks, and can also use the equity in the home to pay for major purchases in the future, making home ownership even more appealing.
There are many programs and a wide variety of mortgage products to meet the needs of people in every lifestyle and life stage. So if you do your homework, check out all your options and talk with a trusted advisor at Credit Union of Denver, you will be able to live the American dream before you know it.