Tuesday, March 11, 2014
By Michele Lerner
The Washington Post
WASHINGTON — If you’re frustrated at paying rent for your apartment, you may be considering whether now is the right time to buy a home.
A Realtor’s sign marks a home as sold in Portland, Ore. An important factor in deciding to buy a home is how long you plan to stay in the area. “It’s best to stay in your home at least five to seven years to recoup the cost of buying and to build equity,” one broker said.
DEVELOP a five-year plan. You need to own a home at least five years to build equity.
DETERMINE your budget. Regardless of the loan amount you qualify for, you need to know what you’re comfortable paying for your housing.
CHECK your credit. Your credit score is paramount to getting a loan – you may need time to improve it.
CONSULT a lender. Before you look at homes, you must know your price range and your ability to obtain financing.
CONSULT a real estate agent and see what’s available in your price range.
Making the leap from renter to homeowner isn’t as simple as deciding your rent’s too high, though. In reality, you need to carefully weigh the pros and cons of homeownership in the context of your finances and your future.
“There’s a notion that we have in our heads that we have to buy a house and that it’s somehow wrong to rent,” says Anna Behnam, a financial adviser and managing partner with Ameriprise in Rockville, Md. “The reality is that it’s not true for everyone and there are positive points to renting and to buying.”
Behnam says that renting offers the benefit of being able to move whenever you want to take a job in another part of the country or even just in a different location in the same area.
“It’s also nice not to have to pay for maintenance,” says Behnam. “If your air conditioning breaks down, your landlord has to pay $6,000 to replace it, not you.”
Homeowners not only need the money to make repairs, but they must make time to maintain their property, says Nancy Wert, a realty agent with Re/Max Realty Centre in Olney, Md. Even a relatively small and newer home requires at least some maintenance; an older home may require a bigger budget for home repairs.
An important factor in deciding to buy your first home is how long you plan to stay in the area.
If you plan to stay in your area for only three years, you should probably rent, says Shelley Green, a real estate broker with Long & Foster in Bethesda, Md. “It’s best to stay in your home at least five to seven years to recoup the cost of buying and to build equity.”
Another option to consider, if you’re here for just a few years but think you’ll be back, is to purchase a home that will appeal to renters, says Jen Angotti, a real estate agent with DCRE Residential in Washington. Look for a good location and the amenities a renter might like, live in it yourself and then rent it out, says Angotti, who adds, “Of course, you need to be ready at that point to be a landlord.”
Wert says many buyers decide to become homeowners when they’re ready to commit to a location for their children to attend school because they want to invest in that community and maintain friendships there.
Behnam says another incentive to become a homeowner is the ability to make decisions about how to decorate or improve your property rather than having to seek your landlord’s approval.
On a purely financial basis, many future homeowners say they feel they’re wasting money by paying outrageous rents and are concerned about rent increases. Buyers who opt for a fixed-rate mortgage have the advantage of knowing their principal and interest payments will remain the same, although property taxes and homeowners’ insurance premiums can rise.
“Over the long term, a lot of financial planners say buying a home is a great way to build wealth because you build equity as you pay down your loan and you have the benefit of the tax deduction,” says Angotti.
While there’s no guarantee that home values will increase during any given period and values sometimes decline, holding onto your home for the long term offers more of an opportunity for the value to increase in addition to building equity through loan repayment.
Even if you’re emotionally ready to buy a home and think it’s a smart financial move, you need to find out as soon as you can if you’re qualified to buy. While a stable job history and a solid income are important, you also need good credit and money saved for a down payment.
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