Making Cents Blog

Your Main Considerations as a Prospective Home Buyer

Why Do You Want to Buy a Home?

So you’re thinking about buying a home. Now sit down with pen and paper and ask yourself why? Answers may include: it’s a good investment, low interest rates, we want to start a family, we want to own something rather than renting for the rest of our life, we want to put down roots, stability, the American dream . . .

By now you’re starting to frame a mission statement rather than focusing on practical realities, but that’s fine because there are some things in your life that you do because you feel it’s right in your heart and soul—and buying and owning your own home is one of those things.

However, in these somewhat uncertain times, we have to ask some practical questions as a matter of good sense and basic survival. Here are a few initial questions and options when considering the purchase of a home.

Should You Rent or Buy?

Whether you should rent or buy is probably the most common question. Alliance Credit Union suggests you use a simple price-to-rent calculation, i.e., choose a home that’s in the price range you feel you can afford then divide it by the annual cost of renting a similar home.

For example: You find a home with an asking price of $400,000. You research shows that comparable rental units average $4,050 per month, or $48,600 per year, so you divide $600,000 by $48,600 and come up with the number 12. Most experts suggest you use the number 20 as your make it or break it point. The ratio here (12) is well below 20, so buying a home may be a good option. Other experts suggest that a price-to-rent ratio of 1 to 15 indicates that it’s much better to buy than to rent and a price-to-rent ration of over 20 is telling you it’s much better to rent that buy.

How Are You Set Financially?

Now you’re looking good on paper to buy (vs. rent), but before you jump in the car and spend Sunday afternoon looking at open houses, you might want to consider a couple of other things. For instance, do you have stable employment, emergency savings, and a down payment of no less than 5% as well as cash for closing costs? Also, what about home ownership costs such as such as property taxes, insurance, and home maintenance?

Are You Ready to Get Pre-Approved?

If at this point you’re still feeling confident about being a homeowner, it’s time to visit your credit union and find out what kind of loan amount and mortgage program you qualify for. The loan officer will provide you with a pre-approval letter that acts as a statement of your financial strength and attests to your ability to go through with a purchase. Being pre-approved automatically gets you a VIP level of respect from both realtors and sellers. That means all parties in the home buying process are going to be taking you seriously. It also means your buying intentions are going to take on a new level of seriousness and enthusiasm.

DOING IT . . .

Now it’s time to have some fun! Start checking the Sunday Real Estate sections of the local newspapers, go online and check out local brokers, start interviewing real estate agents and find someone you like and trust, prepare to travel over hill and dale to check out open houses in different neighborhoods and towns. Think about space requirements. How many bedrooms and baths do you need now and what will you need in the future? What about location and the local schools? Do you want a view, stairs, garage, pool, yard, a fixer-upper, or a brand new home? These are just a few of the fun and frustrating specifics and needs that you’ll rationalize, reconsider, stand firm on, and, finally, put into perfect perspective. There will be excitement and stress. You will hug, kiss, and argue. You will smile and wonder how you actually managed to do it. You will buy a home. Your dream home.

Home Sweet Home.

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