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You may be a first time home buyer who is completely unfamiliar with the process. You previously may have purchased several properties and are starting to look for another one. Whatever your case may be, SymbolicLending is here to help. This Homebuyer's Guide will provide valuable and reliable information for you to use as a reference throughout the process of purchasing your home.
Taking the first step towards buying your home is both exhilarating and overwhelming. Before you dive in too deep into the process, it is important to consider several factors. Buying a home will be one of the largest financial investments you make in your life, so you want to be well prepared for the adventure ahead.
What's the best scenario for you? Renting or owning?
While it may seem that owning a home is the best choice, that might not necessarily be the case for everyone. The key is to consider all the factors, good and bad, that come with owning a home. Once you compare renting versus owning, then you are ready to make the best decision for your current situation.
The Rewards and Realities of Homeownership
As with anything in life, you'll find advantages and disadvantages to consider in regards to deciding if homeownership is the best option for you. It's important to look at both the rewards and realities of homeownership before you commit to one of the largest financial investments you can make.
THE REWARDS OF HOMEOWNERSHIP
Invest in your future
Your monthly mortgage payments are not going into the pockets of a landlord. Instead, with each payment, you build equity in your home and contribute to your own long-term, personal investment.
Lighten your tax load
You'll find homeownership opens up a world of potential tax savings. Typically, the interest paid on your mortgage is tax deductible which can provide significant financial relief. To discover all the possible tax advantages available to you upon purchasing a home, it's best to consult with a trusted tax advisor.
Develop your credit further
Homeownerships is one of the best investments you can make. Additionally, making monthly mortgage payments on time will further improve your credit history and will help you with future and additional investments.
Remove questions
With homeownership, your monthly payments are no longer subject to increases by the renewal of a lease and the discretion of a landlord. This will help you make a long term budget plan and remove variable factors in your future financial decisions.
Find freedom
With the only potential parameters being homeowner association guidelines or city codes, you are able to remodel, renovate, and redecorate according to your own personal tastes. You are free to make your home your own -- however you see fit.
THE REALITIES OF HOMEOWNERSHIP
Know the numbers
Certain renting situations provide coverage for the expenses of some or all the utilities. This is not the case with homeownership. Not only will the utilities be the responsibility of the homeowner, but property taxes and homeowner's insurance also will be additional expenses.
Expect repairs
There's no more calling the landlord to fix what might be broken. Any repairs and maintenance that are required on the home and/or appliances will be your responsibility. And, you can expect that these will always come with a bill or invoice to pay.
Stay put
Renting provides flexibility. You regularly are given an opportunity to resign a lease (or not) and suffer only minimal penalties if you decide to break the lease prior to the time of renewal. On the other side, owning a home is a long term investment and will be more financially beneficial the longer you stay in the home. Project ahead; can you see yourself happy in that home and in that neighborhood 5 to 10 years down the road? Deciding to move out of a home does not remove your financial responsibility as the home owner; plus, the process of selling a home can be a time consuming and costly endeavor. It may not happen as quickly as you would like or hope.
How much house can you afford?
If after considering all the contributing factors you conclude that owning a home is the best decision, you next will want to think about how much home you want to own. How much space will you need? How much space can you afford? Knowing what you can afford in a home will help drive your search in a focused direction
. The Home You Can Afford When you start looking for your new home, you'll save yourself a lot of time and frustration if you are sure to start in the right direction. Putting a pencil to paper and calculating the mortgage expenses you would feel comfortable paying each month will set you in a specified price range. With your search narrowed down, you'll know better which houses to consider before you decide on 'the one.'
You'll also want to consider additional costs that might be involved above and beyond your monthly mortgage payment. In some instances, you'll encounter upfront and ongoing expenses.
Upfront Expenses
Home Inspection costs: These may fall between $200 to $900. The costs depend on the running rates in your area.
Down Payment: The down payment for homes usually ranges from 3% to 30% of the purchase price. You will acquire more equity in your home with a larger down payment. This also will set you up with lower monthly payments. If your down payment is less than 20%, you will be required to have mortgage insurance.
Closing Costs: These are expenses that fall above the price of the property which are incurred by buyers and sellers in the process of transferring ownership of a property. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing typically is about 3 percent to 6 percent of the mortgage amount. Closing costs will vary according to the area of the country; your SymbolicLending Loan Officer is able to provide estimates of closing costs for you.
Ongoing Expenses
In addition to your monthly mortgage payment, homeownership also brings with it the following potential expenses:
- Homeowners Insurance (required)
- Mortgage Insurance (if applicable)
- Flood Insurance (if applicable)
- Utilities
- Property Taxes
- Home Repairs/Improvements/Maintenance
What type of housing suits you best?
When you determine how much home you can afford, you next can consider what type of home and neighborhood best fits your needs. Before you begin looking, if you start considering the differences between a single-family home, a condo and the other housing options that exist, you'll save a lot of time and frustration in your search.
Type of Housing and Neighborhood
With your potential monthly budget in place, you are well equipped to move forward with your housing search. Starting off, you'll find a whole world of housing and neighborhood options available to you.
Type of Housing
While there are a good number of housing styles out there, each one provides unique features. The type of house you choose will depend greatly on your lifestyle and personal goals.
Single-Family Home
With the purchase of a single-family home, homebuyers acquire ownership of the home as well as the surrounding lot. All maintenance expenses and property taxes would be the homeowner's responsibility. Of all housing choices, this one typically provides the most privacy and flexibility.
Condo
In purchasing a condo, the buyer owns the areas within the walls of the living space but not the surrounding lot of land or building. Typically, a condo is governed by guidelines from a homeowner's association. These associations require monthly dues or annual fees (which are not tax deductible). In turn, the condo owner does not hold sole responsibility for repairs and maintenance to the unit and has access to property management services. Condo units are evaluated individually to determine property taxes (which are the condo owner's responsibility and are tax deductible*).
Co-ops
In a cooperative housing project (co-op), the buyer owns shares of a corporation which owns the building where the apartment is located. In essence, the person rents the living space from the corporation that owns the building but doesn't own it.
As with a condo, there typically is a governing association for co-ops. Through the required monthly or annual dues (not tax deductible*), the resident of the co-op is free from the responsible of repair/maintenance and upkeep of the external areas; property management services are provided.
Unlike a condo, the co-op unit is not individually taxed. The corporation that owns the building is taxed as an organization instead. Then, according to the shares of ownership in the corporation, the amount of taxes is divided among shareholders.
Planned Unit Development
Also called a PUD, a Planned Unit Development is structured so that the buyer not only owns the house and the surrounding lot, but the person also purchases and owns a portion of common space that is shared with others that live in the development. These common areas are maintained through the homeowner's association. As with condos and co-ops, these fees are not tax deductible*
Type of Neighborhood
Choosing a Neighborhood
As you consider your housing choices, also strongly consider your neighborhood options. The neighborhood you live in is as important as the house itself.
Commute
Do you need a quick commute to work? Keep in mind short commutes limit your neighborhood options.
Your Personality
Do you prefer country, suburban or urban living?
Family
Is a certain school district important to you? Do you need to live near other family members?
Outside Involvements
Do you want to live close to your church or temple? What entertainment venues are nearby?
Future Zoning and Development
Is the park behind your house going to be developed in the future? Does this community have plans to build a large attraction of some sort?
Neighborhood Age
What will the neighborhood look like in 10 years? Are you satisfied with an older neighborhood? Are you content with potential changes your neighborhood could make?
Time of Day
Does the neighborhood feel the same at night as it does during the day? Is weekend traffic heavier than during the weekday?
Extra Costs
Can you afford the county or city taxes or any homeowners association fees?
Homeowners' Associations
What are the homeowners association rules? Are they good for protecting home values?
Neighborhood Investment
Have the homes in this neighborhood held or increased in value?
Talk to the people who live in the neighborhoods in which you are interested. These individuals will know the most about the area and are your potential neighbors. More than anything, you'll want a neighborhood where you feel at home.
“*Please consult with your tax advisor or attorney to discuss your specific situation”
Who do you need on your team?
Buying a home can be a strenuous process. You'll want to be sure to surround yourself with a team of professionals who can assist you towards reaching your dream of homeownership.
Professionals of the Mortgage Process
Purchasing a home is such an involved and detailed process that you'll find a number of different individuals along the way who can provide you the hope and knowledge you need.
Loan Officer
The best way to start your home search is to find a trusted and experienced Loan Officer -- which you will find here at SymbolicLending! With just a little information from you, your SymbolicLending Loan Officer can help you get pre-qualified for a loan. From this, you can calculate a housing budget that will serve as a well-grounded foundation for your house hunt. This will direct you towards the appropriate price range of homes which you should consider.
Moving forward, your SymbolicLending Loan Officer is your best resource for mortgage industry related questions. When determining the best loan program for your individual situation, when investigating how much of a down payment to make, and when calculating your closing costs, this is who you can consult and who will be there for you.
Realtors
Understanding the real estate market can be a challenge, especially since it is incredibly dynamic and constantly changing. A knowledgeable Realtor can provide current and valuable advice into the complex world of real estate.
You'll want to find a Realtor who is aware of local information as well as your personal needs. You will benefit from a Realtor who can provide insight on advantages and disadvantages of the neighborhoods where you'll be looking, who knows of local school systems, and who is up to date on recent sales and prices of similar homes.
On top of that, finding a Realtor who takes the time to get to know you will benefit you even more. When he or she takes the time to find out the needs and wants you have for your home as well as your future financial and personal goals, the Realtor is better equipped to drive the search. They'll know more about the areas of town and types of houses to search out specifically with you in mind. It will make a better use of time, cause less frustration and likely result in you finding your home sooner.
Real Estate Attorney
Buyers in certain areas and specific complicated situations may find it necessary to hire a real estate attorney. Involving legal counsel in the real estate transaction can further confirm that the contracts of the transaction are legally sound and meet all governing stipulations and requirements. It may be best if any unique or specific additions to the agreement are provided or refined by a lawyer specializing in real estate. Ask your Realtor if bringing on legal counsel for your transaction is advised.
Professional Tax Advisor
To get a better perspective of the tax deductions that might be available to you in your specific situation, you can consult with a professional tax advisor. He or she will be familiar with the most recent laws and changes and will help you approximate potential tax savings. The information this professional can provide will help you know which of your mortgage expenses that will be tax deductible.
Next: Chapter 2 - Preparation