DECIDE TO BUY

Congratulations! You are thinking about buying a home. Home ownership can be one of the most exciting adventures in your life. It is an unbelievable feeling to walk in through your front door for the first time knowing that “This Is Mine”. It usually requires some patience, persistence, and planning though. As you know, purchasing a home is probably the biggest financial decision you will ever make. Whether you are a first-time home purchaser or you have purchased many homes before, you will need to make some smart decisions and ask yourself some important questions.

1.1 Why Do You Want To Buy?

Are you tired of paying rent? Have you outgrown your current home? Are schools a factor? Would you like a larger yard? Would you rather live in a different area? Do you want to shorten your commute? Are you downsizing? Do you want investment property? Do you need more bedrooms and bathrooms? Do you want a bigger garage? Is a basement important to you? Do you want a condo, a town home, or a house? Do you want a fixer-upper or a house with all the bells and whistles? Would you like new or old?

By answering the questions of why you want to buy, it helps to understand what type of home you are looking for. You should start making a list of the things that are important to you.

1.2 Has Your Income Grown?

For many people, home ownership can be one of the single best investments they make in their life. Often it can add significant value to your net worth over time. With a fully amortized loan, each payment you make contains a portion of the payment that pays down the principal balance of your loan. Over time you have the ability to payoff the entire balance to own the home outright. You can speed up the process by making extra principal payments at anytime should you choose. Historically, homes have appreciated in value over a long term. However, like any investment…homes can be subject to slowing economies and down cycles as well. You should carefully evaluate your market to search for your best opportunities for appreciation. What are your investment goals in home ownership? Keep it for 30 years or more? Trade up every 4 years? Buy it, live in it, then rent it, and buy another?

1.3 What is PITI?

Every house payment has Principal, Interest, Taxes, and Insurance ( PITI ). You already know what the principal is from above. Interest is the portion that the bank gets. It is the reason the Bank lends you the money in the first place. In the beginning, the interest amount is higher proportionately to the principal. The good news is that with each new payment you make, the principal portion grows bigger and the interest gets smaller. Even better, the interest portion of your payment along with the property taxes for the year, are usually tax deductible on your income statement at the end of the year. Of course consultation with accounting professionals is always advisable, but you can see that this is another great reason to own. Finally, insurance, is the hazard insurance on the home. It is the insurance that protects your investment and the Bank’s investment in lending you the money on the home should something unfortunate happen.

1.4 Can You Afford To Buy?

Experts recommend spending between 33-40% of your income on housing but other options for more exist. The tax benefits, principal reduction, and potential for appreciation aspects of home ownership can provide a considerable advantage over renting. Try our Rent vs. Buy calculator to see how it affects you.

1.5 Do You Have A Down Payment?

Times have changed. It has become easier to purchase a home because the requirements for putting a significant amount down have eased greatly. There are many new alternatives for you to choose depending upon how much money you want to put down. You can choose 100% loan to value in some cases and even have the Seller help to pay your closing costs. The more you put down however, the greater your loan options increase. Putting down 20% or more can help you to waive any mortgage insurance premiums.