What are the tax Advantages of buying a home?
In most cases, the mortgage interest (and property tax) may be itemized and deducted from your taxable income, lowering your overall tax bill. This can make your after-tax cost of homeownership lower than renting. However, there may be tax implications if you later sell the home at a profit. Please consult your tax advisor regarding interest deductibility.
Should I get prequalified for a mortgage before I start shopping for a home?
Getting prequalified for your mortgage is an important step before you shop for a home. It tells you how much home you can buy and therefore what price ranges you should be shopping in. Furthermore, when you find the home you want to buy, including a pre-qualification letter with your offer makes your offer that much stronger and appealing to the Seller. Some Sellers will not even consider an offer if it is not accompanied by a prequalification letter.
Why should I buy, instead of rent?
A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home may go up over the years. Finally, you'll enjoy having something that's all yours - a home where your own personal style will tell the world who you are.
Should I use a real estate broker? How do I find one?
Using a real estate broker is a very good idea. The Buyer’s broker will likely be compensated out of the Seller’s Sales Proceeds, so there is typically no additional cost to you to use a Buyer’s Agent. All the details involved in home buying, particularly the financial ones, can be mind-boggling. A good real estate professional can guide you through the entire process and make the experience much easier. He or she will help you figure the price range you can afford and search the multiple listing services for homes you'll want to see. With immediate access to homes as soon as they're put on the market, the broker can save you hours of wasted driving-around time. When it's time to make an offer on a home, the broker can point out ways to structure your deal to save you money. He or she can explain the advantages and disadvantages of different types of mortgages, guide you through the paperwork, and be there to hold your hand and answer last-minute questions when you sign the final papers at closing.
How much money will I have to come up with to buy a home?
Well, that depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover four costs: earnest money - the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house; the down payment, a percentage of the cost of the home that you must pay when you go to settlement; closing costs, the costs associated with processing the paperwork to buy a house; and pre-paids items, such as Homeowner’s Insurance and tax and insurance escrows.
Earnest Money - When you make an offer on a home, your real estate broker will put your earnest money into an escrow account. If the offer is accepted, your earnest money will refunded to you at closing by way of a credit towards your funds due at closing (down payment, closing costs and prepaids). If your offer is not accepted, your money will be returned to you. The amount of your earnest money varies but will generally will range from $500 - $2,000.
Home Inspections – Home Inspections are customarily at the cost of the Homebuyer. There are many types inspections that can come into play, depending on the property. For instance, larger homes with multiple Air Conditioning Units will cost more to inspect. Likewise, if the home has a pool, septic system, well, or additional outbuildings to inspect, those cost extra as well. Keep in mind that although inspections can cost a sizeable amount of money, in the end this cost can be much cheaper than finding and repairing an issue with the home after you close that would have been caught by an inspector.
Down Payment - The more money you can put into your down payment, the lower your mortgage payments will be. A Conventional Loan will likely require a minimum of 5% down payment. An FHA loan requires only 3.5% down.
Closing Costs - Paid at settlement, these average 3-4% of the price of your home. These costs cover various fees your lender charges and other processing expenses. When you apply for your loan, your lender will give you an estimate of the closing costs, so you won't be caught by surprise.
Pre-paid Items - Also paid at settlement, these average 1.5-2% of the price of your home. In order to come up with an accurate estimate of Pre-paid expenses, it’s important to have a good idea of the total cost of all insurance required for the property as well as the amount of property taxes.
What do I need to take with me when I apply for a mortgage?
Good question! If you have everything with you when you visit your lender, you'll save a good deal of time. You should have: 1) social security numbers for both your and your spouse, if both of you are applying for the loan; 2) copies of your checking and savings account statements for the past 6 months; 3) evidence of any other assets like bonds or stocks; 4) a recent paycheck stub detailing your earnings; 5) a list of all credit card accounts and the approximate monthly amounts owed on each; 6) a list of account numbers and balances due on outstanding loans, such as car loans; 7) copies of your last 2 years' income tax statements; and 8) the name and address of someone who can verify your employment. Depending on your lender, you may be asked for other information.
When I find the home I want, how much should I offer?
Again, your real estate broker can help you here. But there are several things you should consider: 1) is the asking price in line with prices of similar homes in the area? 2) Is the home in good condition or will you have to spend a substantial amount of money making it the way you want it? You will want to get a professional home inspection before you make your offer. Your real estate broker can help you arrange one. 3) How long has the home been on the market? If it's been for sale for awhile, the seller may be more eager to accept a lower offer. 4) How much mortgage will be required? Make sure you really can afford whatever offer you make. 5) How much do you really want the home? The closer you are to the asking price, the more likely your offer will be accepted. In some cases, you may even want to offer more than the asking price, if you know you are competing with others for the house.
What if my offer is rejected?
They often are! But don't let that stop you. Now you begin negotiating. Your broker will help you. You may have to offer more money, but you may ask the seller to cover some or all of your closing costs or to make repairs that wouldn't normally be expected. Often, negotiations on a price go back and forth several times before a deal is made. Just remember - don't get so caught up in negotiations that you lose sight of what you really want and can afford!