We are living in a very tough economic time. We have battles with our gross national product, jobs, interest rates, and the latest battle with the debt ceiling. It is very understandable that people are concerned if this is a good time to purchase a new home. My initial thought is that this is a great time to purchase a home. Homes are on sale for 30-40{74755d553577f4b6a67c31abdd5acf6d2003392b8684840fa8d5e29ee9555d89} off! On top of that interest rates are extremely low. However, I understand the other side of the concern; where is the economy going?
I recently saw some interesting statistics. Home ownership in America is at its lowest point over the past 13 years. We saw a huge spike in home ownership during the boom but now that the bust has happened and double dip in home prices all of those gains in ownership have evaporated. Home ownership is currently at 65.9{74755d553577f4b6a67c31abdd5acf6d2003392b8684840fa8d5e29ee9555d89}
Still, I maintain that now is a great time to purchase a new home. However, purchasing a new home needs care. There are sloppy ways and smart ways to purchase a new home. I would like to share with you 4 things I think home buyers can use to make their next home purchase more secure.
Remember your home is your home and not an investment.
The main reason why you are purchasing a home is because you need somewhere to live. That must be your top priority. You need to make sure that your home meets your needs and the needs of your family. You must look long-term on how the home will you’re your needs 5, 8, even 10 years down the road.
Looking long-term will help you make sure the mortgage payment you choose will meet your long-term financial terms. As the bust has shown us, increased mortgage payments have caused many to lose their homes. You need to make sure the payment you have now will be good for you long-term. Some people jumped at teaser financing that promised low rates now with balloon payments later. People jumped at them thinking they could always refinance later. Well, when the bust dropped the value of homes 30-40{74755d553577f4b6a67c31abdd5acf6d2003392b8684840fa8d5e29ee9555d89} people found out they could not refinance.
Approach the house you will purchase as your home and not an investment. However, one of the great things, a side benefit if you will, is the home can be a great investment. It just cannot be your primary concern. Home ownership will give you great tax benefits as well as building your equity for the future. These are great! Just do not purchase a home because it might be a good investment above choosing a home that will meet your needs long-term.
Get a fixed rate loan and not an Adjustable Rate Mortgage (ARM).
Adjustable Rate Mortgages (ARM) look great on the outside but are filled with danger on the inside. They lure you in with very low rates at the beginning but at a set date those rates reset. People suddenly found themselves paying for loans that went upwards to 11{74755d553577f4b6a67c31abdd5acf6d2003392b8684840fa8d5e29ee9555d89}. (This is an amount one client of mine is facing in the near future.)
Right now the rates for a 30 year fixed mortgage are at the incredible rate of 4.37{74755d553577f4b6a67c31abdd5acf6d2003392b8684840fa8d5e29ee9555d89}. 5 short years ago, during the boom, the rate was at 6.41{74755d553577f4b6a67c31abdd5acf6d2003392b8684840fa8d5e29ee9555d89}. Looking at it over a longer time period, the average 30 year fixed rate since 1972 is 8.92{74755d553577f4b6a67c31abdd5acf6d2003392b8684840fa8d5e29ee9555d89}. Rates right now are more than half off of the long-term average. It really cannot get more attractive than this.
Yes, an ARM might lure you in with a 3.5{74755d553577f4b6a67c31abdd5acf6d2003392b8684840fa8d5e29ee9555d89} rate now but a few years from now you could be looking at 5{74755d553577f4b6a67c31abdd5acf6d2003392b8684840fa8d5e29ee9555d89}, 7{74755d553577f4b6a67c31abdd5acf6d2003392b8684840fa8d5e29ee9555d89}, 11{74755d553577f4b6a67c31abdd5acf6d2003392b8684840fa8d5e29ee9555d89}. Your short-term gain now might be a long-term pain later. Lock in one of these incredible low rates now and long-term you will be glad you did. You will eliminate a potential financial crisis down the road.
Home Warranties are an awesome idea and worth the low cost.
There are different levels of warranties from the basic (usually around $260 annual) up to top-notch plans that cover everything. You can start with the basic plan and then add items that make sense for your home. Some other optional coverage options that you can add would be for central A/C, pool/spa, roof leak protection, etc.
When you own a home the proverbial buck stops at your desk. As a renter you always had someone else to handle the repairs (and the expenses of repairs.) As an owner it is all up to you. And the simple can get very expensive very fast.
Not all home warranty companies are created equal so make sure you choose a reputable company. Some companies I have worked with (and therefore can recommend) are First American, American Home Shield, and Fidelity National.
Inspections with repair costs will protect your purchase.
Home inspections are part of the purchase fo a new home. As a buyer you have the right to perform inspections and the seller is required by law to make to house available for those inspections. There are 2 main inspections that are used right from the beginning: general inspection and pest control inspection. However, there are other inspections you can choose based on your needs and the results of the general inspection.
If the general inspection hints at any potential problems then you need to protect yourself by ordering a specialist to come examine the noted issue. Some typical follow-up inspection would be roof inspection, plumbing issues, or electrical issues. I would recommend another good test to obtain which is a manometer test. This test will measure how level the foundation is and will expose if there are potential problems with the slab.
Take the inspections one step further and get repair estimates. This way you will know what you might be facing for repairs or know what to ask the seller to repair. Having repair estimates will make the conversation between the buyer and seller easier.
Home ownership is part of the great American dream and a dream that I am committed to. You can purchase a home now and be more secure in your purchase by following these 4 key ideas. I hope you found them useful.
