First Things First for First-Time Home Owners
Never mind winter. If the heat is on for you to purchase your first home, you may be warmed by the excitement even as you find yourself frozen by indecision. This is not surprising. Finding your first home can be as enormously gratifying, but funding it can be dramatically daunting. A little financial life planning can go a long way toward making sound choices you can live with about the home you choose to live in.
Begin at the Beginning: Rent or Buy?
Before you leap into what home to buy or how to buy it, your first question should be: Should I own a home at this time? Emotions aside, if you’re not financially ready, it might make sense to continue renting until you are on firmer footing. As we expressed in this NJMoneyHelp.com article, “The magnitude of the carrying costs of owning of home are often a big surprise to former renters. I know they were to my husband and me when we bought our first home.”
Costs to calculate include your initial down payment and “opportunity costs” – or what else you could be doing with the money, such as paying off high-interest debt. You also must factor in a number of recurring costs: your mortgage, annual property taxes, insurance, standard maintenance, home improvements, and applicable condo or neighborhood association fees. Then there are the emergency reserves you’ll want to have for those inevitable events that insurance just doesn’t cover. Refrigerators don’t run forever.
Calculating the Costs
To help with your research, this handy “Rent or Buy?” calculator provides you with a ball-park figure for the initial and recurring costs associated with owning versus renting your home. This Money piece offers additional insights: “When You’re Better Off Renting a Home Than Buying One.” Finally, you might find this telling post of interest, as personal finance author Ramit Sethi describes a friend who was about to buy a million-dollar home in San Francisco. We agree with his succinct subhead: “Research for gargantuan purchases = good.”
Step by Step Toward Your Own Home
So, yes, your home purchase may include costs you hadn’t considered. But it also has its advantages. The government rewards home ownership with favorable tax treatments. Planned properly, you get to build up equity that is yours to keep. If you’re lucky, the value may even increase (although, as described in this Yahoo Finance article, don’t bank on it). Maybe best of all, there’s empowerment in ownership. You can paint the walls any color you please – or even tear them down entirely – without having to ask permission.
If you’ve pushed around the planning pencil and have concluded that it does make sense to buy a home, the New Jersey Housing & Mortgage Finance Agency offers this helpful, step-by-step “Guide for the First-Time Homebuyer.” Some of the financing information is specific to our region, but much of it applies regardless of where you live.
Additional Pointers: Measure Twice, Buy Once
Some additional pointers we like to emphasize as you prepare for your first home purchase:
Check your credit score before you get started. We suggest the Federally authorized AnnualCreditReport.com. Have you ever wondered what influences your credit score? Here’s a handy Consumer Finance resource for that.
Shop for a mortgage. Here’s a handy starting point to assess bank rates in your region (with emphasis on starting point, since rates can change quickly and dramatically).
General Q&A. Last but not least, for general learning purposes, calculators and food for thought, I’m fond of The Mortgage Professor, including his list for first-time home buyers.
Happy home buying or renting, whichever makes the most sense for you!
Sage Serendipity: Whether you own or rent, here’s some fine feline art to consider for your walls.