Is homeownership for you?
Advantages of Home Ownership
Independence & Self Determination – You never know when the landlord might raise the rent, or decide to sell the property, or move his Aunt Edna in, while telling you to move on. You may not be allowed to have pets, not be allowed to paint or decorate the way you want, or have other restrictions as to the way you live in your home. Buying a home can help eliminate those issues and put you in the driver’s seat.
Income Tax Deductions – Generally, any interest you pay on a mortgage used to purchase or improve the property, as well as property taxes and possibly private mortgage insurance may be deductible as expenses on your income tax returns.*
Leverage – With a down payment as low as 3 1/2% if using an FHA loan, you can control 100% of a property, and have the option to have pets, paint, remodel and decorate without the consent of a landlord.
Hedge Against Inflation – Long before people saw homes as great investments, or a piggy bank to use for vacations and plasma TV’s, this was one of the main reasons people bought homes. When you secure a home with a 30 year fixed mortgage, you know your monthly payment will always be the same. Inflation will cause rents to rise over time, but it’s safe to say that if you keep your home for 15 years, the monthly payment you may find challenging today, will likely be a bargain compared to renting down the road.
Equity – As we’ve seen over the past 10 years, housing prices can rise and fall, but over a long period of time, prices can generally be expected to rise and provide homeowners with equity over that period.
*Please consult with a tax advisor to determine how any home purchase might affect you in relationship to your specific income and circumstances.
Disadvantages of Home Ownership
Moving – Many people are in professions that require them to move frequently. If you think you could be in a situation of having to look for a job in another area or don’t plan to be in the area for at least 3 years, buying a home may not be a worthwhile investment.
Stretching Finances – Despite the recent reduction in property values, buying a home requires a modest down payment and what will likely be somewhat higher monthly costs initially than what you can rent for. If you’re comfortable stretching your finances for the benefits of home ownership, that’s great, but sometimes, as many have encountered in this past recession, the benefits may not outweigh the risks if you’re cutting it too close.
Responsibility – When you rent, it’s someone else’s problem if the roof starts leaking, or a pipe breaks. When you buy a home, all that responsibility falls on you.
Price Declines – As we’ve found out in the last decade, real estate can go up or down in value. Nobody can predict with any degree of accuracy when the market will rise or fall.
People Involved In The Home Purchase Process
Listing Agent – Hired by the seller to market the home, and will represent the seller in any subsequent purchase negotiations and resulting transaction.
Buyer’s Agent – Works with a potential buyer to help identify a property to purchase, and will represent the buyer in any subsequent purchase negotiations and resulting transaction.
Mortgage Broker – Takes the loan application, runs credit reports, helps with any issues or concerns that arise, and then packages the application for review by the lender’s underwriters. Mortgage brokers can be independent or work directly for a large institutional lender. See more information on our Loan Information page.
Appraiser – The appraiser is hired by the lender. Their job is to verify that the purchase price that the buyer offered is consistent with recent comparable sales in the areas. Despite the fact that the appraisal is paid for by the buyer, the appraiser is hired by the lender to protect their interests. Appraisers are not neutral 3rd parties, and are not there to provide protection to the buyer or to provide a completely objective appraisal of the property. They have a copy of the purchase contract and know the price agreed to and contract terms when they review the property.
Escrow Officer – A neutral 3rd party that handles the transfer of all money and property between the buyer and seller. The escrow officer operates with written instructions from both buyer and seller, and can only proceed to closing when all parties are in agreement. See more information about escrow on our What is Escrow? page.
Inspectors – Inspectors can be hired by either the seller or buyer to provide information on different aspects of the property. Generally, the buyer is responsible for the cost of any desired inspections they want to complete. See more about this on our Inspections page.
Finding A Lender
Your relationship with the Mortgage Broker is extremely important. We work closely with JVM Lending, and highly recommend them to assist you through the loan process. Additionally, if you belong to a credit union, they can have good programs for members that might be beneficial for you to check out.
Getting pre-approved for a loan is highly recommended prior to beginning your home search. Pre-approval means that your application, credit report, and all other documentation has been sent to and approved by an underwriter at a direct lender. They will make a firm commitment to loan you the necessary funds with specific terms, conditional upon the property you choose. Occasionally, some mortgage brokers will look at your information and, based upon their judgment, issue you a letter of approval. This is actually considered a pre-qualification, and is not a guarantee that you will be able to obtain the desired loan