BEFORE YOU BUY


Before Buy
Four fundamentals of buying a house
While you may never be able to learn enough in theory to make up for a lack of experience with home buying, here are four fundamentals that will help you start the process with a solid foundation:

1. Housing can be an investment, but not always.
Theories on whether or not housing is a good investment tend to vary with whether or not the real estate market has been hot, but they often fail to look at the financials from a resident's perspective. Assume that over time, you simply break even on the price of your home, after inflation. Now, figure out whether you'd be better off with the equity you'd build from the principal portion of your mortgage payments, or with the money you'd have saved by paying rent rather than a mortgage and real estate taxes. From a resident's perspective, these are the true alternatives you face, regardless of the interim swings in real estate prices.

2. Down payments are your best friend.
Rules on down payments vary with time and circumstances, but don't shy away if you have to pay 10 or 20 percent up front. Such a down payment has benefits for the buyer - it gives you an instant equity cushion in your home, and saving for the down payment is excellent practice for finding out what kind of mortgage payments you can afford.

3. Knowing your limits will help you be happy in the long run.
Speaking of knowing what you can afford, understand that any set formula for what percentage of your income can be put towards a mortgage is just a broad generalization, and probably one geared towards getting people to buy more expensive houses. You need to find a comfort zone in your actual budget, so you can make your payments comfortably, with some room for the unexpected. Owning a home should be a source of pride and joy, not a constant anxiety.

4. Fixed-rates mortgages limit risks.
It's worth knowing about adjustable-rate mortgages, but when in doubt, go with a fixed-rate mortgage. Over time, mortgage rates have varied from a low of 4.23 percent to a high of 18.45 percent. Assuming you can afford the payments when you sign up for the mortgage, why take the risk that rates might rise to a level you can't afford?

Buying a house is not only a huge financial decision, but likely one that will affect the day-to-day lives of you and your family for years to come. If you ever feel that emotion is taking over, or that the process is moving too fast for you to understand, then stop everything. Take the time to make a well-reasoned decision, and you'll find buying a house to be a much more enjoyable and successful process.

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