5 Tips On Purchasing Your First Home When buying your first home, there's more to consider than just the price. BY AL JACOBS
When purchasing your first home, be sure you're looking at all the angles.
“ I've always operated on the premise that the worst house in the best neighborhood beats the best house in the worst neighborhood.”
Home ownership, a vital element in what constitutes The American Dream, is certainly a blessing. Unfortunately it also contains the seeds of what can be financial misfortune, perhaps never more graphically depicted than in a 1986 Steven Spielberg movie, The Money Pit, in which a young couple experiences every calamity possible in remodeling a dilapidated house. To help aspiring homeowners avoid some common errors, I want to pass on five tips.
1. Pick the right area. The most overused phrase in real estate is: "The three most important factors in real estate are location, location and location." This happens to be true, but rarely does advice follow its utterance. What this means in practical terms is that you select your home in an area which exhibits pride of ownership, few if any slum properties, an absence of nearby vacant commercial spaces, neighborhood schools with high performance ratings, and a community with a low crime rate. Whatever is not obvious by inspection is readily available from a variety of sources. And as to the house itself, though itís always nice to get a pretty one, location is still the main concern. Iíve always operated on the premise that the worst house in the best neighborhood beats the best house in the worst neighborhood.
2. Avoid a hazardous mortgage. Mortgage interest rates are as low today as you might ever hope for. If you finance your home with an adjustable loan, your payments will probably rise in the future. For this reason, get a fixed rate loan. If you can handle 15-year fully amortized, itís most likely your best bet.
3. Donít stint on the down payment. Home purchases can often be financed with extremely small down payments. Thereís temptation to lever into as expensive a home as you can with the least cash possible. I recommend against this. Thereís a specific minimum down payment to aim for. Itís 20 percent, and thereís a reason. Loans not exceeding 80 percent of a homeís value normally carry lower interest rates, and are exempt from mortgage insurance that adds a premium of about 0.5 percent per year.
4. Hold title wisely. Married couples traditionally hold title to their homes in joint tenancy. Thereís a reason: In the event of a death, the surviving spouse receives automatic title without the inconvenience of probate. This solves one problem, but raises another. Only half the property takes a stepped-up basis as of date of deathómeaning the half that is bequeathed is valued at the current market rate. The other half remains at the original acquisition basis, which may result in an eventual capital gains tax. The problem is resolved if title is held as community property where the entire property takes the stepped up basis. Check this with your counsel.
5. Be slow to remodel. Now that youíre sitting in your very own home, you see all the things you want to change. To this I say: Certain items of repair may be required at once for simple habitability, but except for these, go slowly. Itís best you live in a structure awhile to get a feel of what you really want. Itís simply that a home will grow on you with time, and ideas concocted during your first week of occupancy often seem outlandish by the third month. Itís best you spend the first six months in planning, measuring, sketching, inspecting other homes and models, and enthusiastically fantasizing. At the end of that time you may be ready to proceed.
Iíll leave you with a final thought. For many persons, home ownership is a first step toward financial independence. Best of luck with your house hunting.
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