Purchasing your own home means making an investment in your future and controlling your destiny.
You are no longer a renter, subject to the uncertainty of rising rents or the whims of a landlord, but purchasing a home requires careful long term planning. Unless you’ve inherited a great deal of money, saving up for a down payment takes time and careful planning. It also means forgoing extravagant purchases.
The first step is to sit down with a trusted financial planner and a lender and begin to understand what lenders are looking for. Income, savings, credit scores are all important.
Several factors affect credit scores, so it’s a good idea to have a lender run a credit check to find out your FICO score. (Lender rated FICO scores are different than the FICO scores that you can check for yourself online.) Most people are surprised by the factors that can raise or lower their FICO scores.
Begin the home search process.
Once you’ve saved up enough money for a down payment, and have been pre-qualified by a lender, it’s time to begin the home search process by finding a Realtor that you trust. A referral from friends or family is the best way to find a Realtor.
Many buyers think that they can save money by going direct to a listing agent or using an online, discount service, but be careful to make sure that you’re working with someone who is experienced and is looking after YOUR best interests.
Working with a local, well respected agent who knows the market well is your best bet. They’ll know about upcoming listings before they even hit the market and can work with you in crafting offers that can give you a competitive edge. Believe it or not, it’s not always the highest offer that ends up being the winning bid. A good agent will understand what a seller is looking for and can help you become a more appealing buyer.
By purchasing in a home, you’re leveraging your investment.
If you purchase a $300,000 home with a 20% down payment ($60,000) and that home increases in value by 5% to $315,000, your $60,000 investment increased to $75,000.
If you had instead put $60,000 into a different investment that paid 5% annually, your $60,000 would be worth $63,000 instead of $75,000.
There is no guarantee that a home will appreciate by 5% each and every year, because prices do go up and down depending upon the economy. However, according to the National Association of Realtors and the Census Bureau, the AVERAGE price of existing homes have increased by over 5% annually since 1968.
Reduce the principle.
One way to pay down your principle loan balance is to make one extra mortgage payment per year. This extra amount should go directly towards reducing the loan principal. In doing so you can end up paying off your loan years faster, saving you thousands of dollars.
Engage your Real Estate and Financial team early. Doing so will help you to simplify the home purchase process, potentially saving you valuable time and money.
Information provided courtesy of Audrey Judson of Strand Hill | Christie’s International Real Estate.