Home ownership for many is the American dream. It has been proven in almost every neighborhood that there is a sense of pride from homeowners when they own their home. You can see it in their yards and in their houses. You can see it when you talk to them about their homes. Homeowners typically feel more connected with their community. Simply put, homeownership matters. However, it was not that long ago when it was a nightmare for some. Many learned that just because their bank said they qualified for a home loan did not mean that they could truly afford one.
Renting and buying has different costs. With renting you have the monthly rental payments and maybe some renter’s insurance. With buying you have to come up with a down payment and closing costs. Once purchased, in addition to the mortgage payment, there are property taxes and homeowner’s insurance that must be addressed either monthly or annually, depending on the type of loan you received.
Don’t forget, some lenders require monthly mortgage insurance and some areas require HOA dues, also to be paid monthly. Then there are the costs of repairs and maintenance (expected and unexpected) that come with owning a home. Remember, there is no landlord to call when something does go wrong. You are the landlord when you own your own home.
Feeding the housing craze right now is the rumor that interest rates have bottomed out and will be heading higher any time now. There is a fear of being left behind and a rush to get in now before rates rise. Before you rush to “get in” understand the true cost of buying versus renting. If you can’t afford it, no matter the rate, you will be better off not purchasing.
With that said, before buying consider all the costs of owning a home beyond the mortgage payment. The mortgage is just the beginning of your housing costs. Rule of thumb is to add another 30-45 percent to get a more realistic total monthly cost.
Second, calculate what the tax break will really save you. If you are in the 20 percent tax bracket that means you will only receive a 20 percent break on your interest payments.
Third, check your credit score. Before you even think about looking at homes you want to make sure your credit report is in order. The higher your score, the lower the interest rate you will be offered on the loan. Then, check with a trusted lender who will review your financial situation and determine your debt to income ratios to help you establish your price point or target range. This will help you from falling in love with homes you cannot afford.
Lastly, don’t try and go it alone. Connect with a trusted local realtor who knows the area, can tell you the local tax rates, explain Mello-Roos fees, find out if any judgments have been filed, etc. You will want a realtor who can give you the “back story” on any house you are interested in.
If you have questions regarding this and/or other real estate matters, contact Mike Mason, Broker/Owner of Mason Real Estate DRE: 01483044, Board of Director of your Southwest Riverside County Association of Realtors® (SRCAR), Short Sale & Foreclosure Resource certified by National Association of Realtors® (NAR) at [email protected] or (951) 296-8887.