Home Buying: Some First Steps (1207)

Most people know that a home-buying mistake can have long-term financial consequences. If it’s your first time, you may have little experience to help prepare you for the decisions involved. Here are some starting thoughts.

Housing is much more than shelter. Most of the money we spend on housing goes for things other than a roof to keep the rain out. Home buyers often pay a lot for the right location, a certain style of home, a fireplace, or a master bath suite.

Before beginning house hunting, explore each family member’s housing priorities in detail. Don’t assume you have the same priorities. Bring differences out early and negotiate compromises to prevent bitterness and misunderstandings later. Finding a house will take less time when you have reached agreement first.

Don’t buy a home to make money. Many first time home buyers assume buying a house will save money on their income taxes, and they can sell the house in a few years for a large profit. These expectations are not always realistic today.

While in many areas home values increase substantially each year, this is not always the case. In some cases, money in a savings account would increase faster. Not all home buyers realize major income tax breaks. Remember, a tax break is only worth having if you are not paying more for housing to get it. There are also closing costs to be considered. These costs, which are part of obtaining a mortgage loan, are paid at the time the house is purchased and can total several thousand dollars.

These facts are not meant to scare you away from buying a home. Rather, they’re meant to encourage you to think realistically about the economic aspects of home buying: home buying does not always yield large financial returns.

How much can you afford to spend for housing? Real estate professionals and lenders can evaluate your savings and income and give you an idea of how large a loan you qualify for. Usually you will qualify for a loan that has payments between 25 and 28 percent of your monthly income.

If you have few bills to pay each month you may qualify for an even larger loan. However, before you start looking at more expensive houses, look at how much you are currently paying for housing and the additional costs you can expect as a home owner. You will have moving-in expenses such as drapes, appliances, and yard care equipment, as well as repair expenses. Look carefully at your budget and make sure your monthly payments will be comfortable for you as well as for the lender.

If you would like to buy a house, but feel you can’t afford it, there are programs to help lower-income individuals become owners. These programs can help with downpayments and interest rates. A loan officer at your bank or a real estate agent may be able to direct you to such programs.

Should you work with a real estate professional? You may not be able to explore the housing market without a real estate agent’s help. A good agent talks with you about what you want in a house and does much of the leg work for you to screen available houses for ones that match your criteria.

Real estate agents are obliged to call any defects they are aware of to your attention, and they can give you advice on mortgage options and the various steps involved in completing the purchase of a home. However, the sellers are paying the real estate agents. Real estate agents are operating under contracts to represent the sellers. They are obliged to solicit the highest price for the sellers, and their primary goal is to complete sales so they can receive their commissions.

There is no reason to avoid buying a house for sale by owner rather than through a real estate agent. Here are some things to keep in mind: The seller should be willing to sell at a lower price, since he or she is avoiding the cost of a real estate agent. However, sellers often expect to pocket this money themselves. Some sellers may have set the asking price too high from inexperience or lack of information. If you question the value, consider getting an independent appraisal of the house.

For more information on this subject, Please visit the College of Agricultural Sciences Publications Web site.

Feel free to forward, post or reprint any of the "Solutions" in their entirely, but please credit http://www.solutions.psu.edu/ as the original source of information, and please do not change the content.