Buying a Home: What to Know and How to Prepare
Owning a home is one of the most significant dreams that many people work toward in life. Seventy-four percent of Americans want to own a home, but many find affordability to be a challenge. However, with some preparation and understanding of the process, homeownership is still within reach for many, as evidenced by the hot housing market over the past few years. This real-estate growth is largely driven by Millennial and Gen Z buyers entering the market.
With a home being the largest purchase most people will make in their lives, having knowledge of the homebuying journey can help ease concerns and make taking that next big step toward such a significant goal a little bit easier.
What to Consider Before Buying
There are some things to look at before making the commitment to buy a home. One of the biggest considerations, especially in this rising-rate environment, is interest rates on a mortgage. Even just 1% of interest can equal hundreds of dollars each month on top of the principal amount owed.
There are also costs to maintaining a home. Many people fail to consider the expenses that come with home maintenance, utilities, property taxes, and more. All of this is in addition to the mortgage payment—and some houses may require more upkeep based on their age and how previous owners have cared for them.
It’s also important to think long-term when buying a home. Is this a place for the next year or is it for many years? Buying and selling frequently can lead to mortgage payout penalties and may eliminate any advantage to buying versus renting.
Finally, consider how much cash you have on hand to buy the home. Many people get a mortgage, but putting a down payment on the purchase price can make mortgage payments more manageable, provide immediate equity in the home, and give access to lower interest rates, which will save money in the long run.
Getting Prepared to Buy
The average home price in the United States is now over $428,000. A typical homebuyer simply does not have that kind of cash laying around to purchase property. As a result, most buyers turn to their bank or other lenders to obtain a mortgage in order to purchase a home.
It’s often recommended to connect with a bank or mortgage broker before beginning to shop for homes. They can complete a pre-approval and give a buyer a specific amount that they can qualify for, which makes it easier to narrow down housing options. A mortgage calculator can also help buyers determine the cost of ownership before they start an application.
To obtain a mortgage, lenders will want to see some combination of income statements, tax returns, employment history, other debts, commission/bonus income, and other documentation that they may need to come to a decision.
With a pre-approval in hand, buyers have a leg up on other bidders because there is less chance the deal will fall through from a seller’s standpoint.
Shopping for a Home
With a mortgage pre-approval or cash in hand, buyers are ready to see what is available on the market. There is much to consider when looking at homes. Of course, there is the home itself. Does it have enough bedrooms? Is the backyard big enough? Are the finishings stylish or outdated? Everyone will have unique needs and tastes.
Buyers will also need to decide if they want to buy a new home or buy a home being sold by someone already living there. A new home will come with modern features and finishes. Plus, buyers may have the opportunity to customize the home and truly make it their own if construction is not yet complete. A new home will have sales tax applied as well, which could add thousands of dollars to the final cost in addition to any construction costs or upgrades.
A resale home could be anything that’s just a few years old to decades old. It could be renovated or not. Generally, resale homes will have more room for negotiation, as they don’t have the same profit motivation as a builder that has just completed construction. Depending on the age of the home and the attention from previous owners, resale homes can be in excellent shape or in grave need of repairs.
Expert Partners Along the Way
There will be a lot of professionals and experts involved in the process when buying a home. This can be incredibly helpful when thinking about spending such a significant amount of money. These partners include mortgage brokers, bankers, financial planners, lawyers, realtors, tax professionals, home inspectors, insurance advisors, and more.
As a general rule of thumb, it’s helpful to have about 3% of the purchase price of the home on hand for closing costs. If all of the funds are not used, then the buyers will have some extra cash to purchase new furniture or put back into savings after the purchase is complete.
There may be some tax benefits offered to help manage the cost of owning a home. For example, home interest can be deducted on a tax return up to a $750,000 mortgage. The State and Local Tax (SALT) deduction can also make tax season easier by allowing a deduction for eligible state and local taxes. It is capped at $10,000 for single filers and $5,000 for Married Filing Separately (MFS) filers.
Mortgage insurance can be deducted if premiums are part of the monthly payment and AGI is less than $100,000.
These deductions can soften the cost of ownership but should not necessarily be the deciding factors, as there are still significant costs to consider when buying.
Getting Trusted Advice and Guidance
At Cukierski and Associates, we have been providing professional advice to families for over 40 years. Homeownership is often one of the main goals our clients identify, and they look to us for advice before buying or selling and all the years in between.
We take great pride in being trusted by people throughout all stages of their lives. To speak with us and learn more about how we can help you, contact us today.
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