INFO JUST FOR YOU – FIRST TIME BUYERS
Home buying is an exciting process. You can make sure it stays that way by reviewing the information and tips that we will provide to you.
Your first job is to figure out how much you can and want to spend on your new home. It’s simpler for us to work backwards in the process, starting off with how much you want to spend. By knowing your budget, we can then determine the areas and types of properties that you can afford. Loan conditions are changing constantly, so it’s best to speak with a lender or bank before you begin your home search to make sure that we being looking at homes that are in your price range.
A good way to begin this task is to figure out what you want to pay monthly for all of your housing costs (e.g. mortgage, taxes, maintenance & insurance). At the same time, try to get a sense of what your maximum tolerable monthly housing costs are. These figures will help the lender and us to determine what a comfortable and maximum property price will be for you.
Once you have a good idea of how much you want to spend, you’ll need to talk to a mortgage professional who can tell you how much you can borrow and how much you can afford to buy. Your mortgage professional will also tell you what interest rate you can get and what loan options may be available to you. We have a great team of experienced, service-oriented lending professionals that we would be happy to refer you to.
WHY YOU SHOULD CONSIDER BUYING
As of late 2015, the average rent for a 1 bedroom apartment in Seattle was over $1600 per month, compared to slightly under $1000 per month in late 2010 (rentjungle.com). $1600 per month is also the monthly cost of a 4.5% mortgage on a $350,000 house with 10% down. The house, though, would get tax deductions on the mortgage interest and property taxes and would not be subject to the annual rent increase like apartments.
In our above example, rents went up roughly 10% a year between late-2010 and late-2015, outpacing the increase in housing prices…wow!
Once you purchase a particular home, much of your housing costs are not exposed to inflation if you use a fixed-rate mortgage for your purchase.
Your property will also accumulate equity. Equity is simply the difference between the fair market value of your home and the amount remaining on your mortgage. Over time, equity can be increased in two ways:
1. The value of your home increases through appreciation, physical improvements, etc.
2. You pay down the principal on your mortgage.
You can think of your equity as a potential lower-interest investment tool. We recommend that you only use your equity for investments that help you to create and build more wealth, as it can too easily become a source of funding for personal purchases that increase personal debt and financial liabilities.
Look at your home’s equity as a source of money to make improvements to your home that will increase its value, to use as a source of leverage for other property purchases, as a funding source for a new business, or to help you fund other investment vehicles, like a 401K, IRA, etc (which may have additional tax-deduction benefits for you as well).
As an aside, the housing market problems that began in the late 2000s were due to many causes. Banks lent too much to unqualified borrowers, borrowers over-borrowed, industry folks over-sold…there’s plenty of blame to pass around. With significant inventory of short sale, bank-owned, foreclosed and other types of distressed properties, we have learned that a very significant portion – if not a majority – of distressed sellers had taken equity out of their homes for what we can reasonably believe were for non-investment purposes. Any good financial adviser will tell you that it is a terrible idea to use home equity like a personal credit card or cash machine.
Let’s move onto the financing section where we’ll talk more about your options and how the loan process works.