money

Reducing the complexity of buying a home

You want to make sure your will be able to get a good return on your investment

13:38 January 6, 2018

If you’re a first-time homebuyer, you’re totally entitled to feel overwhelmed. Buying a home isn’t just a big commitment, but it is a complex process that requires you to be as involved as you can.

Why? Because the costs of not paying attention could increase your overall cost of owning this home, and could simply change your financial future.

There are many factors to consider when you’re planning for your home: the home itself, the mortgage to finance, and your exit strategy. And yes, you need this last one, because you want to make sure your will be able to get a good return on your investment and you will be able to get out of this purchase if needed.

You can begin your research months or even years ahead of taking one home tour or applying for a mortgage. Here is how to go about it.

The basics

To start, understand whether you’re are ready for home ownership. The answer to this question is whether you’re planning to stay put in this location for several years to come. Then ask yourself if you are financially stable to go forward with this commitment.

If you are bouncing from one job to another, with an unsteady income, you’re unlikely to qualify for a mortgage. And you also probably should not be looking to take on such a debt obligation.

Finally, know why you want to buy a home. You may find it is cheaper for you to own despite the costs. You may want to the stability and predictably of a monthly payment instead of constantly struggling with rising rents.

If your conclusions all point to home ownership, go for it.

The home

Now you need to decide on the home that you’d like to invest in. Knowing how much home you can afford is the first step. So look into your finance and your mortgage eligibility and see how much money you can have. Once you have a budget, look into options.

Surprised? Many times, people are shocked at how little — or how much — home they could afford. And that is not about size; it is also about location. As with anything to do with real estate, location drives value. At this point, you will need to consider the neighbourhoods that are likely to be within your budget, and consider additional costs and requirements.

For example, if you only can afford a home that is an hour away from your office, would you need a better car, a second car, closer schools for the children? Any of such changes may come with a price tag as well.

When you’re considering the home you can afford, you must consider old versus new — or newer. If all you can afford is a significantly old home, you must budget for improvements, repairs and high running maintenance costs.

The mortgage

Very few, lucky people can afford paying for home in cash. And in reality, you don’t really need to do so if you can get a good, low rate on a mortgage. So make sure you contact your bank — and other banks — to get an idea of what rate they would offer you — based on your income and credit history.

Don’t only look at the rate, however. Mortgages come with a bunch of other costs, like loan origination costs and closing costs. In many cases, these costs can be financed along with your loan, but they will increase the loan amount and your monthly payment. Make sure that you always ask about the additional costs upfront. If you’re financing a home, you’re likely to pay for homeowners insurance and the lender might require mortgage insurance, so ask about these two cost items as well.

Exit strategy

Know all the ins and outs about early-repayment of your mortgage. If you have to sell the home, you should be able to walk away with some equity — or at least break even. Your lender should explain any penalties upfront.

You also should survey the market and the neighbourhood to know how easy it will be for you to sell the house at a fair market price if you need to. Again, it doesn’t make financial sense to sell soon after buying, and you probably will always lose money in this case. But if you’d sell after five or seven years, you should be sure you will be able to do so easily and walk away with a chunk of money.

The writer, a former Gulf News Business Features Editor, is a Seattle-based editor.

First-time homebuyer?

Understand why and how to buy

Find out how much home you can afford

Qualify for a loan and know the costs

Find a home with a good resale value

R.O.