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To Buy or Not to Buy?
That may be the question. The answer is both personal and financial.
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 If you're planning to buy a home, you probably have good reasons for your decision.
It may be that you share the feeling that owning your own home is a key part of the American
dream. But there are also financial issues involved in buying real estate that you need
to consider as well.
From one perspective, a home is an investment, maybe the single largest one you'll
ever make.
Like certain other investments, real estate has the potential to increase in value over
the years, so that you can sell it for more than you paid.
But unlike investing in stocks, bonds, variable
annuities, and mutual funds, which you buy as a way
to achieve your financial goals, most people consider owning a home as an end in itself.
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FAMILY GIFTS If your parents or grandparents are willing to help you out
with buying a home, each of them can give you a tax-exempt gift of up to $12,000 a year.
It's a case where a timely gift may make a lot more sense than an inheritance.
Be careful, though. Gifts over the limit may be taxable for the giver. And
loans from family members earn imputed interest if the lender doesn't
charge you any - or enough - to borrow. That means he or she has
to pay income tax on the interest that normally would be paid even though
you didn't pay it. One exception occurs when a parent's loan enables a child
with no investment income to buy a home.
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| HOW BUYING WORKS There are usually three distinct phases in buying a home:
accumulating the down payment, finding a mortgage, and building your equity.
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| 1. |
Generally you need a down payment of at least
10% and sometimes as much as 20% of the purchase price available in
cash in order to buy. But you can investigate some federal and state
programs, like those run by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and certain community groups, which require a much smaller amount
up front. Your attorney or real estate agent should be able to tell
you about special programs. You can also do some research online, starting
with the website of the US Department of Housing and Urban Development
at www.hud.gov.
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| 2. |
When you have enough for a down payment, you can begin looking
for a home and a mortgage loan. That's a long-term loan that provides the money you
need to buy the home. You pay the loan back, usually in monthly installments over
a 10- to 30-year period. |
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| 3. |
When you've arranged your mortgage and bought your home, you
gradually build your equity, or ownership, by paying off the interest and principal of your loan. In most cases
your monthly payment will also include enough to cover the real estate taxes and
insurance on the property. Those costs are sometimes referred to as PITI, or principal, interest, taxes, and insurance. |
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WHAT IF YOU'RE TURNED DOWN?
If you're turned down, ask why. Find out which credit reporting
company the lender used to check on your credit history and request a copy of
that history from the company. It should be free of charge since you've been
turned down. If there are any obvious errors, follow the instructions on the
report to have them corrected and check up to see that the changes have been
made. If the negative information is correct, and your credit history has
flaws, at least you'll know the factors that may be blocking your application
and can begin to strengthen your credit credentials.
Sometimes you can make out better applying to a bank or credit union you
already have a relationship with or using a mortgage broker who specializes in
finding interested lenders. The broker will charge a fee, so you'll want to be
sure that cost is necessary. You might check out online mortgage sources. And,
you might consider a private arrangement with sellers who would be willing to
finance the purchase - although you don't want to do that without the advice of
a real estate lawyer you trust.
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© 2008 by Lightbulb Press, Inc.
All Rights Reserved.
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