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Buying a Home -
Getting Started
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First-time home buyers spend three months, on average, from when they first start looking for a house until the closing. That start may include a preliminary search through magazines, drives through neighborhoods, and going to open houses and parade of homes showings. Some first-time buyers start off contacting an agent and getting guidance throughout the process. Many buyers can make the best use of their time, and the agent's time they're paying for, by making sure their finances are in order first. There isn't much point in expressing interest in a home if you're not in a financial position to purchase it. On the other hand, you may be surprised by how much you can afford -- meaning in many cases how much you can afford to borrow and how much a lender is willing to loan you at a rate you can afford. |
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Buying a Home -
Financing
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Home loan plans fall into three simple categories: fixed-rate loans, adjustable-rate mortgages, and hybrid loans, which have features of fixed-rate loans and ARMs.
Fixed-rate mortgages have interest rates that don't change during the life of the loan. The interest rate on an adjustable-rate mortgage (ARM for short) adjusts every six to 12 months, or every month, depending on the terms of the loan. When interest rates fall, the ARM interest rate usually falls, but the opposite is true when interest rates increase.
Adjustable-rate mortgages "are tied to an index which is a measure of the lender's cost of borrowing money. As the index rises, so will the interest rate on the adjustable loan," according to Dian Hymer, author of "Buying and Selling a Home, A Complete Guide," Chronicle Books, San Francisco; 1994. Common indexes include Treasury Securities (T-Bills), Certificates of Deposit (CDs), and Libor (London inter-bank offering rate). Most metropolitan newspapers publish current ARM index rates.
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Buying a Home -
Investment Properties
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Investing in Real Estate
Home ownership is a highly leveraged investment that can yield substantial profit on a nominal front-end investment. However, such returns depend on home-price appreciation.
As for evaluating the risk associated with home ownership, David T. Schumacher and Erik Page Bucy write in their book "The Buy & Hold Real Estate Strategy," John Wiley & Sons, New York; 1992, that "good property located in growth areas should be regarded as an investment as opposed to a speculation or gamble." What is the best time to buy?
Because many buyers prefer to move in the spring or summer, the market starts to heat up as early as February. Families with children are anxious to buy so they can move during summer vacation, before the new school year begins. The market slows down in late summer before picking up again briefly in the fall. November and December have traditionally been slow months, although some astute buyers look for bargains during this period. Should I buy a vacation home?
Today a vacation home can be purchased for investment purposes as well as enjoyment. And yes, there are tax benefits.
Some people buy a vacation home with the idea of turning it into a permanent retirement home down the road, which puts them ahead on their payments. Another benefit is that the interest and property taxes are tax deductible, which helps to offset the cost of paying for a second home. A vacation home also can be depreciated if you live in it less than 14 days a year. Resources:
- "Real Estate Investing From A to Z," William Pivar, Probus Publishing, Chicago; 1993.
- "The Ultimate Language of Real Estate,'' John Reilly, Dearborn Financial Publishing, Chicago; 1993.
What do you think of a vacation home as an investment?
You can buy a vacation home today for investment purposes as well as enjoyment. And yes, there are tax benefits.
Some people buy a vacation home to use as a permanent retirement home later, which allows them to get ahead on their payments. Another benefit is that the interest and property taxes on a vacation home are tax-deductible.
Some real estate experts predict that vacation homes will appreciate in value due to rising demand from the aging Baby Boom generation. You also can depreciate the property if you live in the house less than 14 days a year.
You also need to consider whether you can afford to carry two mortgages, pay for the extra utilities and maintenance costs, and how this investment fits into your total personal finance picture. Get-rich-quick real estate schemes
Most real estate experts say there is no such thing as getting rich quick in real estate. But there are no end of get-rich-quick programs presented to the public as alternative methods of buying real estate.
Some are reputable while others depend on your financial circumstances to work. A handful are simply scams.
Many get-rich-on-real-estate programs offer advice on how to buy government foreclosure properties and participate in other government programs. Most of this information can be obtained by calling the government offices involved directly.
Anyone interested in real estate investments would be wise to explore a variety of sources. Most investors view real estate as a long-term investment. Deals that sound too good to be true often are.
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