Ultimate First Time Home Buyer Guide
by
Gerald Tribuzio
Copyright 2012 Gerald Tribuzio,
All rights reserved.
Published in eBook format by eBookIt.com
ISBN-13: 978-1-4566-0705-0
No part of this book may be reproduced in any form or by any electronic or mechanical means including information storage and retrieval systems, without permission in writing from the author. The only exception is by a reviewer, who may quote short excerpts in a review.
Introduction: Today’s Housing Market
There has never been a better time to purchase a home with rock-bottom prices and mortgage interest rates at all-time lows which is the good news. The bad news is the fact that mortgage lenders want perfect loans and it is a loan officer’s job to make you look perfect. Several years ago the only requirement to get a home loan was a pulse and then the house of cards came tumbling down and the toxic sub-prime, exotic arm, and no income documentation loans caused many lenders to shut their doors. Homeownership is now a privilege and you need to do your homework and gather an arsenal of information so you can achieve the American Dream of owning your own home. Renting is not an option. Landlords are not paying their mortgages and tenants are being evicted who had no clue that their landlord stopped making payments to the mortgage company even though they made their rents payments. Also, the cost of renting is starting to escalate due to a supply shortage caused by displaced homeowners who have been foreclosed upon. Finally, if you don’t get a mortgage now then your ability to qualify may disappear because mortgage rates will go up, home prices will rise, and lenders may stop loaning money. Lenders will continue to tighten their guidelines with higher down payment and credit score requirements and increase their interest rates and mortgage insurance premiums to offset the losses created by the bad loans of the Sub-Prime Crisis Era. I think you have to take control of your life and decide if you want to own your own home and do whatever is necessary to make that a reality. The best news is that there are still some low to zero down payment loan programs available which can help you achieve the goal of homeownership but you must not waste any time. I hope this first time home buyer guide will help you improve your life for you and your family and figure out what you need to do to own a home before the opportunity of a lifetime is gone.
Chapter 1: Rent Versus Owning Home
The first thing you must do is make a decision whether to buy a home or not. There are some reasons you may not want to buy a home these days: job uncertainty, dropping home values, lack of down payment, bad credit, etc., but there are many more good reasons to buy a home.
Best way to build wealth-Over the last 100 years it has been proven that buying a home is the best investment you can make. For example, if you purchased a home for $80,000 (adjusted for today’s dollars) after The Great Depression you could have sold that same home eight years later for $110,000. You would have made $30,000 during one of the worst busts in the housing history. Today, we are facing a similar housing market and now is the time to buy. You need to get in your car and drive around your neighborhood and you will see foreclosures and short sales on every block and these homes are the some of the best deals you will see in your lifetime. There is a big inventory of underpriced homes but how long will it last? I think prices are starting to bottom out and there are a ton of first time home buyers sitting on the fence waiting for the right time to buy. Once prices start moving up there will be a mad rush to put offers in on these homes and prices will move up fast and you may miss your chance to purchase a home at a bargain basement price. Please don’t wait before it is too late. What do you have to lose? For example, if you purchase a home for $100,000 and you put down $3,500 and the seller pays your closing costs then your home needs to go up $3,500 to break-even when you sell it. Remember, you only lose money if you sell your home when the market is down.
Tax Deduction-You will receive a great tax benefit when you purchase a home. The interest, real estate taxes, and mortgage insurance of your mortgage payment is tax deductible which will give you an effective lower after-tax payment. The PMI or mortgage insurance deduction may be eliminated in the near future. Please consult your financial advisor or accountant to determine tax benefits in your given situation. Let’s take a look at a Rent versus Own example. If you were to purchase a $150,000 home with 3.5% down payment on a 30 year fixed rate mortgage at 4.50% rate, $3,000 year property taxes, and $600 year home insurance versus paying $1,000 per month for rent then the numbers would look like Figure 1.1. If you plan on renting a 2 bedroom apartment or home for $1,000 then you could buy a $150,000 home for $1,198 per month but you will save $321 per month in tax benefits (based on 28% tax bracket) on interest, taxes, and mortgage insurance so your after-tax payment will be $877 per month which is $123 per month lower than $1,000 rent payment. In fact, you could purchase a $175,000 house with after-tax payment of $1,000 based on the example below.
Figure 1.1
Stop paying your landlord! The money you spend every month might as well be thrown in a furnace. See Figure 1.2. If you pay $900 month rent and your rent increases 10% per year then you will pay $172,000 in rent payments over a 10 year period. Wow!
Figure 1.2
Your rent payment will not build up wealth or give you tax benefits which makes it very difficult to save money. Remember, you will build up wealth when the home goes up in value. Also, you build up equity when you make a loan payment because a portion of every loan payment will be going toward paying down the principal balance of your home loan which is money in the bank. Also, you can pre-pay your mortgage every month by sending in additional funds which will reduce the principal balance of your loan and decrease the number of years it will take to pay off your loan. For example, if you take out a $100,000 loan then your principal and interest payment will be about $507 based on 4.50% interest rate and if you send in additional $100 per month then you will pay off mortgage in about 20 years. Another reason not to pay your landlord is the fact that there is no guarantee he is making his mortgage payment and you may get evicted from your apartment even though you make your rent payments on time. Today, there are many more landlords collecting rents and skipping on the mortgage payments. The economy is not doing well and you need to take control of your destiny and housing situation before you end up on the street.
Interest rates are at historic lows-In the 1980’s, mortgage rates peaked out at about 21% and when I started in mortgage business in 1990 the rates were around 11%. Today, a 30 year fixed rate mortgage is hovering around 4.50% and believe me you will never see rates this low again. The super-low rates makes it easier to qualify for a home loan and your payment is much more affordable on a higher priced home. Interest rates will eventually go up and they could be in the 6.00% to 7.00% range in the next couple years. We have been spoiled by the low rates but eventually the economy will turn around and rates will go up. Also, many mortgage companies may raise rates to compensate for the losses created by foreclosures. If you choose to wait then you risk the opportunity to qualify for a great home with a low payment you can afford. For example, you can purchase a $150,000 home today at 4.00% rate and the monthly principal and interest payment would be $716 per month but if you purchase the same home years from now and the interest rate is 7% then your monthly payment would be $997 which is almost $300 per month higher than the payment calculated at 4.00% rate. Which payment do you want?
Today is the best time to buy a home. You can purchase a beautiful home at a bargain basement price at an unbelievably low interest rate on a 30 year fixed mortgage. Stop throwing away thousands of dollars every year on rent and start building wealth and save money by becoming a homeowner. Jump off the fence and get