| How to Buy Your Home, Part 1 |
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A home will probably be one of the best investments you'll ever make. It will certainly be the most expensive investment you'll ever make. I'm not talking about the mere $439,000 that the house originally cost (or the $43,900 your parents originally paid when they bought their first house). I'm talking about what it costs to maintain it. But that's beside the point. Aside from the quality-of-life advantages of owning a home, there are two very significant financial benefits (beyond the obvious tax deductions for mortgage interest and property taxes): 1. You have the opportunity to be mortgage-free by the time you retire or shortly thereafter. 2. The home can be a source of additional income during retirement for downsizers. How much house can you afford? Before getting tied up in the theatrics of finding a home, take a dispassionate look at how much you can afford to pay. Figure out how much more it will cost you to own a home compared with renting. After you factor in the tax savings from mortgage interest and property tax deductions, you may be pleasantly surprised to find that the cost of owning won't be much more than what you are paying in rent. Keep in mind that when you start looking for houses, you'll always find "better" houses that are beyond your price range. That's understandable, and it happens to all home buyers. Someone who is looking at $2 million homes would dearly love to buy a $3 million home, because it's a "better" home. Set a reasonable target price (although you'll probably end up spending more than your target). You should also find out if you qualify for assistance for lower-income homebuyers. Check with state and federal housing agencies, because they may have a program for you even though your income isn't all that low. Are you financially prepared to look for a house? Three matters need to be attended to: 1. Is your credit rating okay? 2. Have you cleaned up your debts? 3. Do you have enough money for the down payment? Rather than addressing these issues after you begin your house search, why not go to a lender and get a preapproved loan? This will also put you in a much better negotiating position. The amount a lender may lend you is not necessarily the amount you can comfortably borrow. Ask yourself if buying a house that costs the maximum you can afford will leave you so short that you won't be able to furnish it, much less take a vacation for the next decade. |
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