Thinking about purchasing a home of your own? Great!! As an experienced Realtor, I have helped dozens of First Time Homebuyers in my career. The youngest one being just 18 years old and the oldest at 66 years young! (Some people are renters for almost their whole lives, but eventually become "wise" to the benefits of home ownership).
For most people, owning a home will make economic sense especially in an area like Northern Michigan (which has one of the highest home ownership rates in the country). Decisions about housing should also be treated as an important and necessary part of life AND considered as a financial investment.
Keep these critical considerations in mind:
How long you plan to live in the home?
If you purchase a home and get a job transfer or decide to move after only a short time, you may end up paying money in order to sell it. The value of your home may not have appreciated enough to cover the costs that you paid to buy the home and the costs that it would take you to sell your home. Mike's Advice: 2013 has been a good time to buy since Mortgage Interest rates are still relatively low, yet expected to rise, and homes will generally to continue to appreciate in value. We are well into an economic and Real Estate recovery. The length of time that it will take to cover those costs depends on various economic factors in the area of the home. Most parts of the country have an average of 5% appreciation per year. In this case, you should plan to stay in your home at least 3-4 years to cover buying and selling costs. If the area you buy your home in experiences an economic up turn, the length of the time to cover these costs could be shortened, and the opposite is also true.
How long will the home meet your needs?
What features do you require in a home to satisfy your lifestyle now? Five years from now? Depending on how long you plan to stay in your home, you'll need to ensure that the home has the amenities that you'll need. For example, a two-bedroom dwelling may be perfect for a young couple with no children. However, if they start a family, they could quickly outgrow the space. Therefore, they should consider a home with room to grow. Could the basement be turned into a den and extra bedrooms? Could the attic be turned into a master suite? Having an idea of what you'll need will help you find a home that will satisfy you for years to come. Mike's Advice: Think in terms of re-sale value. A 3 bedroom home may be a smarter investment if you are not sure how long you will remain in the home. Buying a "good bones" home that needs updating or remodeling may be the best bet for both short term and long term investment return.
Your financial health - your credit and home affordability.
Is now the right time financially for you to buy a home? Would you rate your financial picture as healthy? Is your credit good? While you can usually find a lender to lend you money, solid lenders are more skeptical if your credit history is not good. Generally, a couple of blemishes on a credit report will make you a good credit risk and could qualify you for the lowest interest rates. If you have more than a couple of blemishes on your report, you may need to spend time and money to repair your credit before qualifying. Mike's Advice: Planning is key! All Mortgage Brokers and banks will evaluate your situation and some will help you repair your credit - ask me how I can help.
Some say that you should refrain from borrowing as much as you qualify for because it is wiser not to stretch your financial boundaries. The other school of thought says you should stretch to buy as much home as you can afford, because with regular pay raises and increased earning potential, the big payment today will seem like less of a payment tomorrow. This is a decision only you can make. Are you in a position where you expect to make more money soon? Would you rather be conservative and fairly certain that you can make your payment without stretching financially? Make sure that whatever you do, it's within your comfort zone. Check out the "home affordability" calculaters on our site.
Where will the money for the transaction come from.
Typically homebuyers will need some money for a down payment and closing costs. However, with today's range of loan options, having a lot of money saved for a down payment is not always necessary - if you can prove that you are a good financial risk to a lender. If your credit isn't stellar but you have managed to save 10-20% for a down payment, you will still appear to be a good financial risk to a lender.
The ongoing costs of home ownership.
Maintenance, improvements, taxes and insurance are all costs that are added to a monthly house payment. If you buy a condominium, townhouse or in certain communities, a monthly homeowner's association fee might be required. If these additional costs are a concern, you can make choices to lower or avoid these fees. Be sure to make your Realtor and your lender aware of your desire to limit these costs. Mike's Advice: Property tax rates can vary from Township to Township and if you are within a City or Village. Make sure you take this into consideration.
If you are still unsure if you should buy a home after making these considerations, you may want to consult with an accountant or financial planner to help you assess how a home purchase fits into your overall financial goals.