Buying Your Home: What You Need to Know

For Most Americans Their Home is Their Biggest Asset

Buying a home for the right price is an art form and not a do-it-yourself activity. You want to engage a top real estate professional who knows the market, the true value of the home, the potential of the neighborhood and, in the end, is a proven negotiator. To start the process, you should first choose a lender and get pre-approved, rather than pre-qualified. The difference is your lender has gone beyond opinion, based on your oral interview, and has fleshed out your financial situation in order to “pre-approve” you. This makes a world of difference. With a pre-approval rather than a “pre-qual” your real estate professional will inform the seller and their agent you’re approved, and then ask them if there house is. That’s right, not only does the buyer get approved, but the seller’s home must get approved via inspections and appraisal.

Which leads to the three basic items you much collect and assess: the appraisal, the home inspection and the comps. In addition, if you don’t have the cash, you’ll want to pre-qualify for a mortgage. Your credit score and down payment will factor heavily into the interest rate you’ll pay. Your mortgage payment is comprised of the principle, interest, property taxes and home insurance. To secure the maximum monthly mortgage, a rule of thumb is your payment and other debt should not exceed 36 percent of your gross monthly income. But, one word of caution: If you’re not anticipating a tax refund, you should not exceed 25 percent of your gross income. After all, you make mortgage payments with your net-payroll proceeds, not your gross 

After the 2008 housing debacle, residential real estate appreciation became somewhat suspect as a hedge against other assets with appreciation potential. The market has recovered somewhat, but it may never return to the kinds of gains people were used to before the housing market crash. And, by the way, those gains were not healthy; they were unsustainable. However, in today’s market, appreciation rates averaging 4 to 5 percent will provide a solid long-term investment.

Seniors looking to purchase their retirement home should consider the Home Equity Conversion Mortgage (HECM) program offered through HUD and insured through the FHA. There are three basic HECM programs: A reverse mortgage that generates income, a home purchase that requires half the value of the home in cash (not to exceed $636,150) and an equity line of credit that appreciates uncorrelated to the market value of your home. The home purchase option has recently gained popularity because you pay for half the value of the home in cash and have no mortgage payment. To be clear, you still have a mortgage. You just don’t have a mortgage payment.

It’s important to contact a financial professional or real estate professional that specializes in retirement home options. Contact yours before making any big decisions.