If you’ve made the decision not to go it alone and work with an agent, your next step will be picking one out. Many rely on the recommendations of friends, lawyers or accountants. Even with those recommendations, you should interview prospective agents.
Questions to ask:
Is this a career or a hobby for you? The general real estate sales just means between 30 and 90 hours of class time in most states. So for many, this can be a part-time job. In the recent real estate boom, it’s become a popular second career. If someone has a broker’s license, that means they have more experience -- one to three years in most states. About half of real estate agents are Realtors, which just means they belong to the National Association of Realtors, a professional organization that comes with a code of ethics.
How long am I stuck with you? Understand whether you are under any agreement to stick with this agent and for how long. At what point can you find a house or buyer on your own and not have to pay a commission?
Are you really working for the other side? Buyers’ agents specialize in finding homes for buyers. They know the local market and will work it on your behalf. Because the commission really comes from the seller, buyers have to be sure to avoid someone working on the seller’s behalf. If you pick up a flyer from a For Sale sign, for example, odds are you’ll be calling the seller’s agent. They’re already obligated to work to get the best price for the seller. So, don’t tell them you’re really willing to pay more than you’re offering now. Agents have an extra incentive to sell the homes listed with their firm, so some chosoe an Exclusive Buyers Agent. They don’t take any listings.
Do you know my turf? Make sure you get an agent that is familiar with both your neighborhood and houses in your price range. Ask what the average price of a home is they sold last year. If you’re selling or only looking at a certain type of home, say, a condominium, ask how well they know that market.
What’s your rate? Normally seller’s pay a commission of 5-7 percent, which is split so each the buyer’s agent and the seller’s agent get about 3 percent. Some agents are negotiable, though. Just like in the stock market, there are discount brokers who may offer you fewer services for a lower rate.
What exactly am I paying for? Sellers need to comparison shop the services and philosophy of each agent. How will they get your house in front of the most buyers? Do they believe in open houses? What kind of advertising and Web presence do they have? Will it be on the Multiple Listing Service? Buyers want to know how much attention they’ll get from their agent. That may translate to the number of leads or willingness to show many houses.
http://realestate.aol.com/article/_a/who-is-your-real-estate-agent/20060825105109990002
Saturday, September 8, 2007
Who is your lender?
Getting the right loan can make the difference in whether you can afford your house or not. Be sure to understand all the hidden terms on your loan.
1. What’s the rate now -- and what can it go up to later? If you’re getting a fixed rate loan, the question is pretty straightforward. Your interest rate --and your monthly payments -- are fixed. You can check the going rate on a particular type of mortgage at sites like bankrate.com. Remember that the farther your credit history is from perfect, the higher your rate will be. If you have an Adjustable Rate Mortgage (ARM), it gets much trickier. You’ll get a better deal on the beginning rate, but it could go up from there. The loans are usually labeled with a fraction. A 3/1 ARM means that the rate stays put for three years, then re-adjusts every one year afterwards.
What stops ARM payments from going to the moon are important safety features called a caps. The cap limits on how much the payments could go up the first time, in each subsequent time or overall. So, it’s crucial to understand what you could be getting into if rates continue to rise, but it’s something easy to miss. A recent survey by the Federal Reserve Board found that 41 percent of homeowners with ARMs didn’t know how much the rate could go up overall and 35 percent didn’t know how much it could go up at once.
2. How about those points? Points are a way to pay your lender to reduce the rate. Each point costs 1 percent of the loan balance. Points and interest rates work like a see-saw. As your points go up, your interest rate goes down. Some lenders are now offering “negative points.” They give you cash for settlement costs, but come with the steep price of higher interest rates.
The longer you plan to stay in your home, the more valuable points are to you. Several online calculators are available to help figure out how long you would need to stay put to make each point worth it. Usually points are paid upfront, but sometimes they can be added to the principal.
3. Is there a penalty for paying off the loan early? Homeowners are often surprised to learn that they can get stuck with a fee for paying off the loan early. Sometimes that fee can be quite hefty: up to 3 percent of the loan balance or 6 months interest. Lenders use the penalties to keep homeowners from quickly jumping to cheaper mortgage rates.
The penalties aren’t all bad: You may be able to get a better rate if you agree to pay a penalty for prepayment of a loan. Though, if you’ve had trouble getting a loan, you may be required to accept a prepayment penalty -- because if your credit improves, you’ll surely be tempted to refinance.
Be sure to understand the terms of the penalty before you agree to it. Many penalties gradually decline and then disappear after a set number of years. When will your penalty go away? Will it apply if you sell your home or only if you refinance?
4. Can I lock in this fabulous rate right now? In today’s rising interest rate environment, locking in a good rate is vital. Traditionally buyers looked for a mortgage after they found their home. The lender would then lock that rate for 15, 30, 45, or 60 days to allow time for processing the application and for any delays in settlement. Today the lock is as flexible as everything else in real estate. The lock can last from a week to four months. Some buyers get the loan first with a “lock and shop” agreement, which can fix the loan price for up to a year.
Be sure to ask your lender: How long does it usually take you to approve a mortgage? Can I get the lock in writing? Does the lock cover both interest rates and points? What are the fees -- if any -- for the lock? Are there any conditions that will allow the lender to break the lock? If your lock expires, you’ll probably have to pay the prevailing rate. Lenders who resell their mortgages to other investors may be unwilling to cut you a break. So, you may want to ask your lender if they keep the loans or resell them.
5. What do I need to do to get that loan? Each loan comes with two kinds of requirements -- what you need to qualify and what you need to prove it. “Qualifying guidelines” are the basic requirements of each loan. Have you had steady or increasing income for the last couple years? How much of a downpayment is required? How big of a bite of your monthly income will the payment take? If you have credit problems, are they far enough in the past? If you meet all the conditions, you have to prove how much you make. Typically, that involves two years of income tax returns and W-2 forms, two months of pay stubs and recent statements from anywhere you save or owe money. For the self-employed or others with complicated financials, there are mortgages that require no documents, but come with higher rates.
http://realestate.aol.com/article/_a/who-is-your-lender/20060825112609990001
1. What’s the rate now -- and what can it go up to later? If you’re getting a fixed rate loan, the question is pretty straightforward. Your interest rate --and your monthly payments -- are fixed. You can check the going rate on a particular type of mortgage at sites like bankrate.com. Remember that the farther your credit history is from perfect, the higher your rate will be. If you have an Adjustable Rate Mortgage (ARM), it gets much trickier. You’ll get a better deal on the beginning rate, but it could go up from there. The loans are usually labeled with a fraction. A 3/1 ARM means that the rate stays put for three years, then re-adjusts every one year afterwards.
What stops ARM payments from going to the moon are important safety features called a caps. The cap limits on how much the payments could go up the first time, in each subsequent time or overall. So, it’s crucial to understand what you could be getting into if rates continue to rise, but it’s something easy to miss. A recent survey by the Federal Reserve Board found that 41 percent of homeowners with ARMs didn’t know how much the rate could go up overall and 35 percent didn’t know how much it could go up at once.
2. How about those points? Points are a way to pay your lender to reduce the rate. Each point costs 1 percent of the loan balance. Points and interest rates work like a see-saw. As your points go up, your interest rate goes down. Some lenders are now offering “negative points.” They give you cash for settlement costs, but come with the steep price of higher interest rates.
The longer you plan to stay in your home, the more valuable points are to you. Several online calculators are available to help figure out how long you would need to stay put to make each point worth it. Usually points are paid upfront, but sometimes they can be added to the principal.
3. Is there a penalty for paying off the loan early? Homeowners are often surprised to learn that they can get stuck with a fee for paying off the loan early. Sometimes that fee can be quite hefty: up to 3 percent of the loan balance or 6 months interest. Lenders use the penalties to keep homeowners from quickly jumping to cheaper mortgage rates.
The penalties aren’t all bad: You may be able to get a better rate if you agree to pay a penalty for prepayment of a loan. Though, if you’ve had trouble getting a loan, you may be required to accept a prepayment penalty -- because if your credit improves, you’ll surely be tempted to refinance.
Be sure to understand the terms of the penalty before you agree to it. Many penalties gradually decline and then disappear after a set number of years. When will your penalty go away? Will it apply if you sell your home or only if you refinance?
4. Can I lock in this fabulous rate right now? In today’s rising interest rate environment, locking in a good rate is vital. Traditionally buyers looked for a mortgage after they found their home. The lender would then lock that rate for 15, 30, 45, or 60 days to allow time for processing the application and for any delays in settlement. Today the lock is as flexible as everything else in real estate. The lock can last from a week to four months. Some buyers get the loan first with a “lock and shop” agreement, which can fix the loan price for up to a year.
Be sure to ask your lender: How long does it usually take you to approve a mortgage? Can I get the lock in writing? Does the lock cover both interest rates and points? What are the fees -- if any -- for the lock? Are there any conditions that will allow the lender to break the lock? If your lock expires, you’ll probably have to pay the prevailing rate. Lenders who resell their mortgages to other investors may be unwilling to cut you a break. So, you may want to ask your lender if they keep the loans or resell them.
5. What do I need to do to get that loan? Each loan comes with two kinds of requirements -- what you need to qualify and what you need to prove it. “Qualifying guidelines” are the basic requirements of each loan. Have you had steady or increasing income for the last couple years? How much of a downpayment is required? How big of a bite of your monthly income will the payment take? If you have credit problems, are they far enough in the past? If you meet all the conditions, you have to prove how much you make. Typically, that involves two years of income tax returns and W-2 forms, two months of pay stubs and recent statements from anywhere you save or owe money. For the self-employed or others with complicated financials, there are mortgages that require no documents, but come with higher rates.
http://realestate.aol.com/article/_a/who-is-your-lender/20060825112609990001
Questions for the Buyer
Owning your own home is part of the American dream, a dream that’s become easier to attain in recent years. Nearly 7 in 10 American households own their own home, up from 44 percent in 1940. Still, a home is the biggest investment most people will ever make. So, you have to be sure you are ready. If you’ve just caught real estate fever, you could end up buying more home than you can afford.
What can’t you live without? Before you even set foot in a real estate agent’s office, take stock of what’s important to you in your new home. Do you want four bedrooms or do you need them? Will you need good schools? An easy commute? Shopping and restaurants within walking distance?
What can you afford? The back of the napkin calculation goes like this: take 25-30 percent of your gross monthly income (minus any previous commitments, like credit card bills or student loans). That should be your monthly housing costs (including maintenance, taxes and insurance). You’ll probably end up with a mortgage three to four times your salary. Interest rates have been gradually rising and observers fear more hikes, so be cautious with any mortgage with adjustable rates, which rise and fall with market rates.
Are you financially prepared for this? Owning a home is a big commitment and it’s not for everyone. Is your job secure? Are you going to be able to make steady payments for decades to come? (Some with variable income may get an option Adjustable Rate Mortgage that will allow a choice of payments.) Establishing good credit will save you an enormous amount of interest payments. Have you saved enough for a downpayment (3-20 percent of the house price) and closing costs (1-2 percent)? You may be able to get a mortgage for less than 20 percent down, but your payments will be higher and you’ll probably have to pay mortgage insurance.
How long are you planning on staying? How you answer this question may determine the previous two questions. If you have no kids and plan on leaving the state in two years, then schools are not your priority. But, if this just might be the house you’re in for the next decade, you better check them out. How long you plan on staying will also determine what type of mortgage you should get. If you’re packing up in a few years, then you might consider an adjustable rate mortgage, one that will allow lower payments at first. The catch is if you do end up sticking around, your mortgage payments could go way up.
Is this some kind of get rich quick scheme? In 2005 nearly 3 out of 10 homes were bought for investment, according to surveys by the National Association of Realtors. Another 12 percent were vacation homes, many with some financial strategy in mind. Over the last several years home prices have climbed by double digits in many regions, so buying a second home seemed like a sure thing. Now that the market is cooling, however, it may be harder to make money on real estate investments if you’re only counting on the price going up instead of rental income.
http://realestate.aol.com/article/_a/questions-for-the-buyer/20060825110409990002
What can’t you live without? Before you even set foot in a real estate agent’s office, take stock of what’s important to you in your new home. Do you want four bedrooms or do you need them? Will you need good schools? An easy commute? Shopping and restaurants within walking distance?
What can you afford? The back of the napkin calculation goes like this: take 25-30 percent of your gross monthly income (minus any previous commitments, like credit card bills or student loans). That should be your monthly housing costs (including maintenance, taxes and insurance). You’ll probably end up with a mortgage three to four times your salary. Interest rates have been gradually rising and observers fear more hikes, so be cautious with any mortgage with adjustable rates, which rise and fall with market rates.
Are you financially prepared for this? Owning a home is a big commitment and it’s not for everyone. Is your job secure? Are you going to be able to make steady payments for decades to come? (Some with variable income may get an option Adjustable Rate Mortgage that will allow a choice of payments.) Establishing good credit will save you an enormous amount of interest payments. Have you saved enough for a downpayment (3-20 percent of the house price) and closing costs (1-2 percent)? You may be able to get a mortgage for less than 20 percent down, but your payments will be higher and you’ll probably have to pay mortgage insurance.
How long are you planning on staying? How you answer this question may determine the previous two questions. If you have no kids and plan on leaving the state in two years, then schools are not your priority. But, if this just might be the house you’re in for the next decade, you better check them out. How long you plan on staying will also determine what type of mortgage you should get. If you’re packing up in a few years, then you might consider an adjustable rate mortgage, one that will allow lower payments at first. The catch is if you do end up sticking around, your mortgage payments could go way up.
Is this some kind of get rich quick scheme? In 2005 nearly 3 out of 10 homes were bought for investment, according to surveys by the National Association of Realtors. Another 12 percent were vacation homes, many with some financial strategy in mind. Over the last several years home prices have climbed by double digits in many regions, so buying a second home seemed like a sure thing. Now that the market is cooling, however, it may be harder to make money on real estate investments if you’re only counting on the price going up instead of rental income.
http://realestate.aol.com/article/_a/questions-for-the-buyer/20060825110409990002
Reasons to Delay Buying a Home
Assuming you have the financial resources and the desire to eventually own your own home, there are very few good reasons to put off the purchase. You can miss out on years of appreciation if you do.
The main thing you want to avoid when buying a home is being put in a position where you will have to sell it too soon. If you have to sell a home before it has appreciated enough to cover the costs and commissions of selling, you could find yourself in a financial bind. This is especially true for those who buy a home with a down payment of ten percent or less.
Real Estate commissions traditionally run around six percent of a home’s sales price. The seller’s closing costs generally come to about one and a half percent. You can see how this can easily exceed the first year’s appreciation. If you made a minimal down payment, you could actually have to come up with cash out of pocket to sell your home.
New to the Area
A very good to reason to delay buying a home is if you have just moved to an unfamiliar area or region of the country. It makes sense to rent for a number of months before deciding on exactly where you want to live. Often when people buy a home immediately they find that they might have made a better decision if they had waited awhile.
Uncertain Job Future
You could be right out of college or expecting a promotion and a transfer. Or your company has announced an impending "restructuring." If any of these apply, it might be best to wait to buy a home. When you have a more accurate picture of what your next few years will be like, that will be the time to buy.
Marital Problems
Real estate agents see a lot of life unfold before their eyes. One of the saddest occurs when former clients divorce and are forced to sell a recently purchased house. It happens all too often when a family in turmoil decides that buying a new home may help resolve their problems. Perhaps it is inevitable that such problems occur, but selling a home before it appreciates can create an additional financial burden in an already difficult situation.
http://realestate.aol.com/article/_a/reasons-to-delay-buying-a-home/20061214171109990001
The main thing you want to avoid when buying a home is being put in a position where you will have to sell it too soon. If you have to sell a home before it has appreciated enough to cover the costs and commissions of selling, you could find yourself in a financial bind. This is especially true for those who buy a home with a down payment of ten percent or less.
Real Estate commissions traditionally run around six percent of a home’s sales price. The seller’s closing costs generally come to about one and a half percent. You can see how this can easily exceed the first year’s appreciation. If you made a minimal down payment, you could actually have to come up with cash out of pocket to sell your home.
New to the Area
A very good to reason to delay buying a home is if you have just moved to an unfamiliar area or region of the country. It makes sense to rent for a number of months before deciding on exactly where you want to live. Often when people buy a home immediately they find that they might have made a better decision if they had waited awhile.
Uncertain Job Future
You could be right out of college or expecting a promotion and a transfer. Or your company has announced an impending "restructuring." If any of these apply, it might be best to wait to buy a home. When you have a more accurate picture of what your next few years will be like, that will be the time to buy.
Marital Problems
Real estate agents see a lot of life unfold before their eyes. One of the saddest occurs when former clients divorce and are forced to sell a recently purchased house. It happens all too often when a family in turmoil decides that buying a new home may help resolve their problems. Perhaps it is inevitable that such problems occur, but selling a home before it appreciates can create an additional financial burden in an already difficult situation.
http://realestate.aol.com/article/_a/reasons-to-delay-buying-a-home/20061214171109990001
Reasons to Delay Buying a Home
Assuming you have the financial resources and the desire to eventually own your own home, there are very few good reasons to put off the purchase. You can miss out on years of appreciation if you do.
The main thing you want to avoid when buying a home is being put in a position where you will have to sell it too soon. If you have to sell a home before it has appreciated enough to cover the costs and commissions of selling, you could find yourself in a financial bind. This is especially true for those who buy a home with a down payment of ten percent or less.
Real Estate commissions traditionally run around six percent of a home’s sales price. The seller’s closing costs generally come to about one and a half percent. You can see how this can easily exceed the first year’s appreciation. If you made a minimal down payment, you could actually have to come up with cash out of pocket to sell your home.
New to the Area
A very good to reason to delay buying a home is if you have just moved to an unfamiliar area or region of the country. It makes sense to rent for a number of months before deciding on exactly where you want to live. Often when people buy a home immediately they find that they might have made a better decision if they had waited awhile.
Uncertain Job Future
You could be right out of college or expecting a promotion and a transfer. Or your company has announced an impending "restructuring." If any of these apply, it might be best to wait to buy a home. When you have a more accurate picture of what your next few years will be like, that will be the time to buy.
Marital Problems
Real estate agents see a lot of life unfold before their eyes. One of the saddest occurs when former clients divorce and are forced to sell a recently purchased house. It happens all too often when a family in turmoil decides that buying a new home may help resolve their problems. Perhaps it is inevitable that such problems occur, but selling a home before it appreciates can create an additional financial burden in an already difficult situation.
http://realestate.aol.com/article/_a/reasons-to-delay-buying-a-home/20061214171109990001
The main thing you want to avoid when buying a home is being put in a position where you will have to sell it too soon. If you have to sell a home before it has appreciated enough to cover the costs and commissions of selling, you could find yourself in a financial bind. This is especially true for those who buy a home with a down payment of ten percent or less.
Real Estate commissions traditionally run around six percent of a home’s sales price. The seller’s closing costs generally come to about one and a half percent. You can see how this can easily exceed the first year’s appreciation. If you made a minimal down payment, you could actually have to come up with cash out of pocket to sell your home.
New to the Area
A very good to reason to delay buying a home is if you have just moved to an unfamiliar area or region of the country. It makes sense to rent for a number of months before deciding on exactly where you want to live. Often when people buy a home immediately they find that they might have made a better decision if they had waited awhile.
Uncertain Job Future
You could be right out of college or expecting a promotion and a transfer. Or your company has announced an impending "restructuring." If any of these apply, it might be best to wait to buy a home. When you have a more accurate picture of what your next few years will be like, that will be the time to buy.
Marital Problems
Real estate agents see a lot of life unfold before their eyes. One of the saddest occurs when former clients divorce and are forced to sell a recently purchased house. It happens all too often when a family in turmoil decides that buying a new home may help resolve their problems. Perhaps it is inevitable that such problems occur, but selling a home before it appreciates can create an additional financial burden in an already difficult situation.
http://realestate.aol.com/article/_a/reasons-to-delay-buying-a-home/20061214171109990001
Why Buying a Home is a Good Idea
The Best Investment
As a fairly general rule, homes appreciate about four or five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region.
Five percent may not seem like that much at first. Stocks (at times) appreciate much more, and you could easily earn over the same return with a very safe investment in treasury bills or bonds.
But take a second look …
Presumably, if you bought a $200,000 house, you did not pay cash for the home. You got a mortgage, too. Suppose you put as much as twenty percent down -- that would be an investment of $40,000.
At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual "return on investment" would be a whopping twenty-five percent.
Of course, you are making mortgage payments and paying property taxes, along with a couple of other costs. However, since the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase.
Your rate of return when buying a home is higher than most any other investment you could make.
Income Tax Savings
Because of income tax deductions, the government is subsidizing your purchase of a home. All of the interest and property taxes you pay in a given year can be deducted from your gross income to reduce your taxable income.
For example, assume your initial loan balance is $150,000 with an interest rate of eight percent. During the first year you would pay $9969.27 in interest. If your first payment is January 1st, your taxable income would be almost $10,000 less – due to the IRS interest rate deduction.
Property taxes are deductible, too. Whatever property taxes you pay in a given year may also be deducted from your gross income, lowering your tax obligation.
Stable Monthly Housing Costs
When you rent a place to live, you can certainly expect your rent to increase each year -- or even more often. If you get a fixed rate mortgage when you buy a home, you have the same monthly payment amount for thirty years. Even if you get an adjustable rate mortgage, your payment will stay within a certain range for the entire life of the mortgage -- and interest rates aren’t as volatile now as they were in the late seventies and early eighties.
Imagine how much rent might be ten, fifteen, or even thirty years from now? Which makes more sense?
Forced Savings
Some people are just lousy at saving money, and a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates.
Second, your home appreciates. Average appreciation on a home is approximately five percent, though it will vary from year to year, and in some years may even depreciate.. Over time, history has shown that owning a home is one of the very best financial investments.
Income Tax Savings
Because of income tax deductions, the government is subsidizing your purchase of a home. All of the interest and property taxes you pay in a given year can be deducted from your gross income to reduce your taxable income.
For example, assume your initial loan balance is $150,000 with an interest rate of eight percent. During the first year you would pay $9969.27 in interest. If your first payment is January 1st, your taxable income would be almost $10,000 less -- due to the IRS interest rate deduction.
Property taxes are deductible, too. Whatever property taxes you pay in a given year may also be deducted from your gross income, lowering your tax obligation.
Stable Monthly Housing Costs
When you rent a place to live, you can certainly expect your rent to increase each year -- or even more often. If you get a fixed rate mortgage when you buy a home, you have the same monthly payment amount for thirty years. Even if you get an adjustable rate mortgage, your payment will stay within a certain range for the entire life of the mortgage -- and interest rates aren’t as volatile now as they were in the late seventies and early eighties.
Imagine how much rent might be ten, fifteen, or even thirty years from now? Which makes more sense?
Forced Savings
Some people are just lousy at saving money, and a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates.
Second, your home appreciates. Average appreciation on a home is approximately five percent, though it will vary from year to year, and in some years may even depreciate.. Over time, history has shown that owning a home is one of the very best financial investments.
Freedom & Individualism
When you rent, you are normally limited on what you can do to improve your home. You have to get permission to make certain types of improvements. Nor does it make sense to spend thousand of dollars painting, putting in carpet, tile or window coverings when the main person who benefits is the landlord and not you.
Since your landlord wants to keep his expenses to a minimum, he or she will probably not be spending much to improve the place, either.
When you own a home, however, you can do pretty much whatever you want. You get the benefits of any improvements you make, plus you get to live in an environment you have created, not some faceless landlord.
More Space
Both indoors and outdoors, you will probably have more space if you own your own home. Even moving to a condominium from an apartment, you are likely to find you have much more room available – your own laundry and storage area, and bigger rooms. Apartment complexes are more interested in creating the maximum number of income-producing units than they are in creating space for each of the tenants.
If you are moving to a home for the first time, you are going to be very pleased with all the new space you have available. You may have to even buy more "stuff."
http://realestate.aol.com/article/_a/why-buying-a-home-is-a-good-idea/20061214171409990001
As a fairly general rule, homes appreciate about four or five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region.
Five percent may not seem like that much at first. Stocks (at times) appreciate much more, and you could easily earn over the same return with a very safe investment in treasury bills or bonds.
But take a second look …
Presumably, if you bought a $200,000 house, you did not pay cash for the home. You got a mortgage, too. Suppose you put as much as twenty percent down -- that would be an investment of $40,000.
At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual "return on investment" would be a whopping twenty-five percent.
Of course, you are making mortgage payments and paying property taxes, along with a couple of other costs. However, since the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase.
Your rate of return when buying a home is higher than most any other investment you could make.
Income Tax Savings
Because of income tax deductions, the government is subsidizing your purchase of a home. All of the interest and property taxes you pay in a given year can be deducted from your gross income to reduce your taxable income.
For example, assume your initial loan balance is $150,000 with an interest rate of eight percent. During the first year you would pay $9969.27 in interest. If your first payment is January 1st, your taxable income would be almost $10,000 less – due to the IRS interest rate deduction.
Property taxes are deductible, too. Whatever property taxes you pay in a given year may also be deducted from your gross income, lowering your tax obligation.
Stable Monthly Housing Costs
When you rent a place to live, you can certainly expect your rent to increase each year -- or even more often. If you get a fixed rate mortgage when you buy a home, you have the same monthly payment amount for thirty years. Even if you get an adjustable rate mortgage, your payment will stay within a certain range for the entire life of the mortgage -- and interest rates aren’t as volatile now as they were in the late seventies and early eighties.
Imagine how much rent might be ten, fifteen, or even thirty years from now? Which makes more sense?
Forced Savings
Some people are just lousy at saving money, and a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates.
Second, your home appreciates. Average appreciation on a home is approximately five percent, though it will vary from year to year, and in some years may even depreciate.. Over time, history has shown that owning a home is one of the very best financial investments.
Income Tax Savings
Because of income tax deductions, the government is subsidizing your purchase of a home. All of the interest and property taxes you pay in a given year can be deducted from your gross income to reduce your taxable income.
For example, assume your initial loan balance is $150,000 with an interest rate of eight percent. During the first year you would pay $9969.27 in interest. If your first payment is January 1st, your taxable income would be almost $10,000 less -- due to the IRS interest rate deduction.
Property taxes are deductible, too. Whatever property taxes you pay in a given year may also be deducted from your gross income, lowering your tax obligation.
Stable Monthly Housing Costs
When you rent a place to live, you can certainly expect your rent to increase each year -- or even more often. If you get a fixed rate mortgage when you buy a home, you have the same monthly payment amount for thirty years. Even if you get an adjustable rate mortgage, your payment will stay within a certain range for the entire life of the mortgage -- and interest rates aren’t as volatile now as they were in the late seventies and early eighties.
Imagine how much rent might be ten, fifteen, or even thirty years from now? Which makes more sense?
Forced Savings
Some people are just lousy at saving money, and a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates.
Second, your home appreciates. Average appreciation on a home is approximately five percent, though it will vary from year to year, and in some years may even depreciate.. Over time, history has shown that owning a home is one of the very best financial investments.
Freedom & Individualism
When you rent, you are normally limited on what you can do to improve your home. You have to get permission to make certain types of improvements. Nor does it make sense to spend thousand of dollars painting, putting in carpet, tile or window coverings when the main person who benefits is the landlord and not you.
Since your landlord wants to keep his expenses to a minimum, he or she will probably not be spending much to improve the place, either.
When you own a home, however, you can do pretty much whatever you want. You get the benefits of any improvements you make, plus you get to live in an environment you have created, not some faceless landlord.
More Space
Both indoors and outdoors, you will probably have more space if you own your own home. Even moving to a condominium from an apartment, you are likely to find you have much more room available – your own laundry and storage area, and bigger rooms. Apartment complexes are more interested in creating the maximum number of income-producing units than they are in creating space for each of the tenants.
If you are moving to a home for the first time, you are going to be very pleased with all the new space you have available. You may have to even buy more "stuff."
http://realestate.aol.com/article/_a/why-buying-a-home-is-a-good-idea/20061214171409990001
The Business Cycle and Buying a Home
Recession and Expansion
There are times when the economy is brisk and everyone feels confident about his or her prospects for the future. As a result, they spend money. People eat out more, buy new cars, and … they buy houses.
Then, for one reason or another, the economy slows down. Companies lay off employees and consumers are more careful about where they spend money, perhaps saving more than usual. As a result, the economy decelerates even further. If it slows enough, we have a recession.
During such a time, fewer people are buying homes. Even so, some homeowners find themselves in a situation where they must sell. Families grow beyond the capacity of the home, employees get relocated, and some may even find themselves unable to make their mortgage payment - perhaps because of a layoff in the family.
In the business cycle of real estate, there are buyers' markets and sellers' markets ... and some markets in between. It is all based on supply and/or demand.
Supply and Demand -- Inventory
During sellers' markets, homes sell quickly and sellers have a lot of pricing power. As a result, prices rise more rapidly than at other times. During buyers' markets, homes may sit on the market for awhile before selling, so sellers become more flexible and may even drop their prices.
The market is determined by supply and demand.
In real estate, the relationship between supply and demand is calculated as "available inventory." At the current sales pace, how long would it take to sell the total number of houses available on the market? That is how the real estate industry measures inventory.
Inventory is measured in weeks and months. Longer inventory times are associated with buyers' markets. Shorter inventory periods are associated with sellers' markets. Some buyers and sellers hope to time their purchase to take advantage of market cycles.
Timing Your Purchase to the Market Cycle
One problem with attempting to time your purchase to the business cycle is that even experts have problems accurately predicting the future economy. Even when they can, the real estate market does not necessarily move in tandem with the stock market or the economy as a whole.
Part of the reason is interest rates.
When the economy is doing well, interest rates are generally higher. The result is that fewer people can afford houses. When the economy slows down, interest rates fall, the "affordability index" moves up and more people can afford houses.
As you can see, this cycle does not move "in sync" with the rest of the economy. It is also influenced by how many people have jobs, whether they are well-paying jobs, and consumer outlook for the future. All these factors make it difficult to know, in advance, whether the housing market is going to boom or bust.
What makes most sense is the "buy and hold" strategy. Buy a home you expect to remain in for at least seven years or more.
Why You Should Not Wait to Purchase a Home
Even if you could "time the market," that strategy would most benefit first-time buyers.
You see, people who already have a home usually need to sell it in order to come up with the down payment for their next home. Even if they don't, they would have to carry the debt and obligations on two homes at the same time. This can create financial hardship, even when you rent out the previous home. There are maintenance costs, renters don't always make their payments on time, the rent may not cover the mortgage and other costs, and sometimes the property may be vacant.
So if you are a move-up buyer and want to purchase your next home during a depressed market, you generally have to sell your current home during that same depressed market. If you want to sell during a boom, then you also have to purchase during the same boom.
It tends to equal out.
Finally, suppose you are a first-time buyer and wait think the end of a boom is near? If you guess wrong, are you going to wait...and wait...and wait...till the next depressed market? If so, you could miss out on loads of depreciation ...
... and that is assuming you guess right about your market timing. In 1996, when the home market was struggling, who would have predicted what the next seven years would bring?
http://realestate.aol.com/article/_a/the-business-cycle-and-buying-a-home/20061214174309990001
There are times when the economy is brisk and everyone feels confident about his or her prospects for the future. As a result, they spend money. People eat out more, buy new cars, and … they buy houses.
Then, for one reason or another, the economy slows down. Companies lay off employees and consumers are more careful about where they spend money, perhaps saving more than usual. As a result, the economy decelerates even further. If it slows enough, we have a recession.
During such a time, fewer people are buying homes. Even so, some homeowners find themselves in a situation where they must sell. Families grow beyond the capacity of the home, employees get relocated, and some may even find themselves unable to make their mortgage payment - perhaps because of a layoff in the family.
In the business cycle of real estate, there are buyers' markets and sellers' markets ... and some markets in between. It is all based on supply and/or demand.
Supply and Demand -- Inventory
During sellers' markets, homes sell quickly and sellers have a lot of pricing power. As a result, prices rise more rapidly than at other times. During buyers' markets, homes may sit on the market for awhile before selling, so sellers become more flexible and may even drop their prices.
The market is determined by supply and demand.
In real estate, the relationship between supply and demand is calculated as "available inventory." At the current sales pace, how long would it take to sell the total number of houses available on the market? That is how the real estate industry measures inventory.
Inventory is measured in weeks and months. Longer inventory times are associated with buyers' markets. Shorter inventory periods are associated with sellers' markets. Some buyers and sellers hope to time their purchase to take advantage of market cycles.
Timing Your Purchase to the Market Cycle
One problem with attempting to time your purchase to the business cycle is that even experts have problems accurately predicting the future economy. Even when they can, the real estate market does not necessarily move in tandem with the stock market or the economy as a whole.
Part of the reason is interest rates.
When the economy is doing well, interest rates are generally higher. The result is that fewer people can afford houses. When the economy slows down, interest rates fall, the "affordability index" moves up and more people can afford houses.
As you can see, this cycle does not move "in sync" with the rest of the economy. It is also influenced by how many people have jobs, whether they are well-paying jobs, and consumer outlook for the future. All these factors make it difficult to know, in advance, whether the housing market is going to boom or bust.
What makes most sense is the "buy and hold" strategy. Buy a home you expect to remain in for at least seven years or more.
Why You Should Not Wait to Purchase a Home
Even if you could "time the market," that strategy would most benefit first-time buyers.
You see, people who already have a home usually need to sell it in order to come up with the down payment for their next home. Even if they don't, they would have to carry the debt and obligations on two homes at the same time. This can create financial hardship, even when you rent out the previous home. There are maintenance costs, renters don't always make their payments on time, the rent may not cover the mortgage and other costs, and sometimes the property may be vacant.
So if you are a move-up buyer and want to purchase your next home during a depressed market, you generally have to sell your current home during that same depressed market. If you want to sell during a boom, then you also have to purchase during the same boom.
It tends to equal out.
Finally, suppose you are a first-time buyer and wait think the end of a boom is near? If you guess wrong, are you going to wait...and wait...and wait...till the next depressed market? If so, you could miss out on loads of depreciation ...
... and that is assuming you guess right about your market timing. In 1996, when the home market was struggling, who would have predicted what the next seven years would bring?
http://realestate.aol.com/article/_a/the-business-cycle-and-buying-a-home/20061214174309990001
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