Tips For Buyers
First, you need to decide if you’re ready to buy and compare the cost of renting to the after-tax cost of owning.
- Years before you sell – You need to keep a home for at least one year before the increase in value can offset the cost of selling. Keep renting if you expect to move within 12 months.
- Maintenance and insurance – Many homeowners spend an amount equal to 1 percent of the purchase price for fire insurance and general maintenance. Enter at least 2 percent if you also want flood or earthquake coverage.
- Interest earned on savings – When you’re deciding whether to rent or buy, consider the rate you’d earn if you invested your down-payment cash in a savings account or money fund that pays a guaranteed return.
- Federal income tax rate – Most people are in the 28 percent tax bracket, which trims $280 off their federal tax bill for every $1,000 in mortgage interest they pay.
- State income tax – It makes even more financial sense to buy a home if you live in a “high-tax” state. You can deduct interest payments on both your state and federal tax returns.
- Property taxes – Your annual property taxes will probably equal 1 to 5 percent of your purchase price, or more. A local agent or lender can give you a more specific figure.
Shop for mortgage rates and terms
A difference of even half a percentage point can make a huge difference in how much you pay over the life of a loan. For example, the difference in the monthly payment on a $100,000 mortgage at 8 percent vs. 7.5 percent is about $35 per month. Over 30 years, that’s $12,600.
Prequalify for a loan
Being prequalified for a loan determines how much house you can afford. It also allows you to move more swiftly when you find the right house, especially when you aren’t the only interested buyer.
Use a buyer agent
A buyer agent is legally responsible for representing the buyer’s interest in a real estate transaction. Generally, the buyer agent is compensated by the seller at the time you purchase a new home. There are some limitations to using a buyer agent, however. Before you decide, have a REALTOR® explain the advantages and disadvantages of using a buyer agent.
Rate the houses you tour
After touring each home, write down what you liked and didn’t like. Develop a rating system which will help you narrow the field down to the house that’s the best for you.
Features that help or hurt resale value
In some areas, a swimming pool actually detracts from a home’s value and makes the home harder to sell. In neighborhoods with two-car, attached garages, a single-car or detached garage may impact the home sale and future value. Your REALTOR® can point out features that hurt, as well as those which help, resale value.