3 Home Buying Myths

1. Buying is always better than renting.  Even though buying a home has tax advantages and secures consistent monthly payments, home-maintenance can be expensive and time-consuming. Typically, buying is only better than renting if you plan to live in your home for 5-7 years or longer, which is roughly as long as it takes for homeowners to break even. Fannie Mae recently revealed that 23% of renters are postponing their plans to buy, and the main reasons people give for purchasing a home are non-financial (43% cited safety as the primary factor while 33% said school quality). One way to estimate whether it's more beneficial to buy is by calculating if the home costs more than 15% of the annual cost of renting a similar home. If  so, you'll get a better deal renting. Still can't decide which option is best for you? Use the rent vs. buy calculator to help or contact me for personal guidance.

2. Real estate is the best investment. Today, investors earn a higher return on investments in stocks than they do on real estate. Within the past 10 years, home prices have risen by only 0.3% annually whereas the S&P 500 has returned an average of 8.26%.  Financial writer Jack Hough cites that over the long run, stocks have rewarded investors with 7% inflation-adjusted return over long periods, while homes earned their owners close to 0%. This is partially explained by the fact that homes don't produce anything. Unless homeowners take measures to actively upgrade their homes, they can only increase in value as the ability of the people to purchase them rises. Appropriately, another Fannie Mae survey illustrated that the proportion of people who believe that buying a home is one of the safest available investments decreased from 83% in 2007 to 70% in 2014. Ironically, only 17% considered stocks safe at that time.

3. The bigger the down payment, the better. Putting down a 20% down payment means you won't have to buy mortgage insurance and you ultimately will borrow less (thus paying less in interest). However, it is not always necessary. You can pay a smaller down payment in exchange for buying PMI (private mortgage insurance) until you have enough home equity (usually 20%) to remove it. Increasingly popular FHA loans accept down payments as low as 3.5%. Smaller down payments (with mortgage insurance) may actually gain you better interest rates than a 20% down payment without insurance, since lenders feel safer when loans are insured. Additionally, saving for a large down payment takes time-home prices may rise in the meantime, or you could miss the opportunity to buy a home you truly love. Smaller down payments ensure all off your money is not tied up in home equity, allows you to diversify your investments (for example, across stocks), and still permits you to pay off the loan early and quit paying mortgage insurance once you put 20% down.

Guidelines for First Time Homebuyers

Home ownership is a big investment in time, money, and lifestyle. To get the most for your money, follow these four guidelines.

1. Boost your credit score. How? Request your free credit report at the start of the year. Dispute issues and pay off debt. Refrain from opening new credit lines and avoid buying big ticket items such as cars and furniture, as this will cause your score to temporarily drop.  Your credit score influences your mortgage approval and rates.

2. Save for a down payment. Also to get the best mortgage rates, plan for a 20-30 percent down payment. Cut optional expenses and save that money for either a down payment or private mortgage insurance.

3. Do your research. Determine what type of loan you want (conventional or unconventional), what you can afford, and what you qualify for. An online mortgage term comparison calculator will help you get an idea of the cost. To see current rates and get quotes from local lenders, click here.

4. Find the best Realtor. In an age dominated by technology, a Realtor remains irreplaceable. Buying a house is stressful—let a professional guide you through the process, negotiate on your behalf, and handle paperwork. Realtor.com suggests looking at various Realtor’s client testimonials—read mine here. I work with both buyers and sellers in the Central Ohio area. If I can help you or someone you know, please contact me. 

Frist-Time Homebuyers: Are you Ready?

Choosing to purchase your first home is a big decision, and it should be well-infomed. Before you decide to commit, ask yourself the following questions, as posed by an article in The Columbus Dispatch:

1) Are you aware of home ownership expenses? Qualifying for a mortgage and having enough money for a downpayment are huge considerations--but they aren't the only ones. Homeowners also pay property taxes, mortgage insurance, utilities costs, and routine maintenance expenses. And what if you have to buy a new roof or A.C. unit? Certified financial planner Paul Dolce urges buyers to wait until they can put 20% down on a home to avoid mortgage insurance and to "establish a a pattern of financial discipline."

2) Are you willing to sacrifice your weekends? Maintaining a home requires several factors--such as lawn care, garden care, DIY projects such as painting, and home repair. On average, adults spend 3-4.3 hours on lawn/garden work each week, according to a 2009 Bureau of Labor Statistics survey. In other words, owning a home does not only require money--it also requires time.

3) Are you sure you'll want to live in this house for at least five years? You build equity while you live in your home. Thus, the longer you live there, the more financially practical it becomes to buy the home rather than rent it. Roughly, if you plan to live in your home for less than five years, home expenses and buying/selling costs may put you at a  loss. It would be more economical for you to rent.

4) Are you confident your relationships will remain the same? Is there a possibility of divorce in your future? What about marriage? Children? If these scenarios are a part if your relatively near future, you may want to delay buying a home. What home and neighborhood is right for a single person may not be so great for a family with two kids. Often, married couples like to buy homes together, so if you're in a serious long-term relationship, it may be smart to wait a bit longer before you take the plunge into homeownership.

5) What is your backup plan? If something happens to your job, or if you need to finance a new hot water heater or car, it's good to have at least six months of housing expenses saved up. This will act as a cushion and ensure that unforeseen expenses won't threaten your new home and lifestyle.

6) Have you researched the neighborhood? Neighborhoods come with different lifestyles. Is the neighborhood you're considering consistent with your way of life? For example, if you're a family with small children, you'll want to ensure that the neighborhood is family friendly. If you live near many retirees or empty nesters, they may be less forgiving when your kids run through their yards. If you like to entertain, you'll want to know that you can play louder music without bothering other people. Ideally, your neighbors will join in, and the area you live in will have lots of kids who can befriend your own.

If you feel confident with way you answered these questions, then congratulations! You're most likely ready to buy your first home. I specialize in first-time home buyers. Please contact me to discuss your home-buying wants and needs, and to see what I can do for you.

Put Zero Down on Your New Home

While the main sources of home-loan money, Fannie Mae and Freddie Mac, require a down payment before they fund a loan, they are not the only sources available. The Navy Federal Credit Union is a federally chartered credit union that offers a zero-down payment program for borrowers.

The Navy Federal Credit Union is the nation's largest credit union and consists of 4 million members. It offers a zero down payment option for qualified buyers, and does not require mortgage insurane. Loans are usually around $200,000, although the maximum is $1 million. This often benefits first-time homebuyers, who are credit worthy but lack the cash for a down payment. Delinquencies are well under 1 percent, suggesting that down payments are just a part of the home-loan financing process. The importance of smart underwriting and good servicing is not to be overlooked.

Attention Home Buyers: Have you Considered...

It's easy to get sidetracked when searching for your next home, since emotions play a very large part in this process. Below are some tips to help ensure you're making the right decision in buying a particular home.

Do some research. Research recent local news, talk to neighbors about the pros and cons of the area, and get a home inspection and detailed records on home improvements that previous owners have conducted. This will expose potential problems such as an unsafe or unfriendly neighborhood, the exposure of radon gas or lead paint, and what home projects will need to be addressed when.

Don't underestimate location. Visit the home at various times of the day to get a feel for natural light exposure and noise. Close to a school? That's not a big deal in the summer, but could be unfavorable during the rest of the year. Also consider your view: do your neighbors have respectable homes? Does the neighborhood have restrictions about what neighbors can build there? Houses that look like tear-downs may be replaced with larger homes that block your view and limit natural light. Finally, explore the surrounding area. Are you close to railroads or airports that may be too loud? Does your neighborhood back up to a less desirable part of town, or commercial area? Are you close to grocery stores, restaurants, schools, or other highly trafficked places? They say that real estate coms down to location, location, location!

Be conscious of expenses. Remodeling can be more complicated than it seems. While painting a wall is quick and inexpressive, adding bathrooms and other more complicated projects could get messy and pricy. Ask for utility bills so that you can consider these expenses when debating whether or not to buy a certain home. Also ask the seller for taxes, focusing on the amounts for several recent tax bills.

These are just a few things a buyer can do in order to make the best informed decision. Having a knowledgeable Realtor is an invaluable resource. Contact me to see what I can do for you.

Time is Running Out!!

November 30th is fast approaching and is the deadline for the First Time Homebuyer Tax Credit of up to $8000. There is still time to take advantage of this opportunity if you do not currently own a home and have not owned one in the last three years. There are income limits but the large majority of first time buyers do qualify for the full amount. There is talk of an extension or for some new program to replace this one, but there is no guarantee that this will happen. In fact, there have been statements made that the Obama adminstration is not looking for any more stimulus like this. So, to be sure you benefit from this opportunity, you must act now! If you need help, or more information, please contact me.