At one point not long ago the cost of renting was well above the cost of buying a home but the problem was not many people could qualify for a mortgage. Today as people have been renting for extended periods that lost money that could have gone to paying down a home loan can be a disappointment and discourage you from continued searching.
While the amazing deals that were available in foreclosed properties aren’t found on every street anymore those deals are out there and home prices have not reached anywhere near their previous highs.
The main factor when purchasing a home is your savings. The more that you can pay up front for a home the lower the overall cost. If you want to purchase a home for $300,000 you should be prepared to spend $60,000 up front for your down payment. This is twenty percent of your cost.
By paying the minimum of 20% on your home you will reduce your costs through insurance fees paid on your mortgage. It will also reduce the amount of money you need to borrow which will be paid back with interest.
However if you are able to save and pay even more out of pocket towards your home you will see major paybacks in your monthly out of pocket costs. The best bet is to save as much as you can and pay it up front. Even if that means selling the second car or getting creative like finding extra income prior to your purchase it is really important to do.
Where should you look for a home to purchase?
Many people will find that buying in the same area that they rent is not affordable. This shouldn’t be a problem if you practice this simple method of finding a home. Calculate the distance from your place of work and then draw a circle on a map showing the same distance from your workplace.
This should be your starting point and because you are probably a two income family you need to account for both work locations.
Next you should extend that area up to 25 percent and use this as your starting point. There may be areas that you want to avoid such as major highways or city limits and you should eliminate them from the start.
Avoid areas such as cities or towns where they assess extra taxes whether the be property, income or other. This will increase your cost to own.
Evaluating Homes for purchase based on Price
When you purchase a home you want to look for the best bang for the buck and this might mean buying a home that is not quite your style but provides a good amount of space and property.
Location is also very important. You should have already established your livability zone but if you find a home in a great area in a reasonable distance from your work you should consider it. If you can save money or have easier access to transportation which can reduce your commute or public transit that can free up a vehicle then it might really be worth the extra distance.
Renting to Own your home
Renting to own is an option that is out there but it is not the normal way of transferring property. Normally you will find Rent to Own options on homes that are being flipped by a management firm that specializes in this type of transfer. Because each situation can be different you will need an expert to review the legal ease behind each deal but if you can find a nice property and the economics of the deal keeps more money in your pocket than other methods you can consider it. On the other hand it is highly likely that you will be paying more in the end and you might get hit with balloon payments that could require a conventional loan.
Home ownership is not the best choice for everyone but if it keeps more money in your pocket and allows you to build worth which you can sell later in life for retirement it is a good investment.
When considering a home you must include many factors that most renters do not even think about. Cost of property tax, home owners association rules, quality of life in a specific neighborhood and many more.
You should never agree to a deal that you aren’t completely comfortable with because you will own the property for some time to come.
And forget about the little things when you buy a home. You are always going to need to change things and items like faucets, room color, countertop material or garden features are so insignificant when compared to the full cost of the home. Even taking into consideration the cost of paying $100 to repaint a bathroom on a $300,000 house is a joke and a bad one.