If you are thinking of leaving the renter's market and buying a home in the next 12 months, you might be a little hesitant because of all the bad economic information in the news. Well, there's no denying that it is a scary time in our economic history and the past few years have been really tough and painful for many of us, this author included. But thanks to our resiliency as Americans and our desire to make a better life for ourselves, this pain will pass. But in the meantime, what is a potential homebuyer to do to get a good deal?
The first item on the list is to figure out if you even have the ability to purchase a home. For this, you must to go a bank or mortgage lender to get qualified and see how much the lender will let you borrow based on your income, credit score, and assets. Then, you would add that amount to how much of a downpayment you plan to use, and that will give you your purchase price range. So if you can borrow $200,000 and you have $40,000 in savings that you plan to use as the downpayment, you can buy up to a $240,000 property. Now, you can figure out what areas and neighborhoods are within your price range.
If you can’t finance enough to purchase a property that is a good fit for what you want and need, then you should hold off on purchasing and save some additional monies, pay off some debt, or make yourself more creditworthy so that you can take another look in 6-12 months at your ability to buy what you want. Renting in the meantime won't be so bad!
Let’s say you can purchase a home in an area where you would like to live. Now we can figure out what a good real estate deal would be. Quite frankly, it’s a fire sale in the U.S. Prices are way down, interest rates are at historic lows, affordability is the best it’s been in decades in some parts of the country, like in California. But despite all that, it still doesn’t mean it’s a good time for you to buy.
To earn wealth on real estate ownership, you really need to own property for a long time. Five years is about the breakeven point to increase your wealth, so owning longer than that should be your top priority. If you aren’t very sure about whether you'll own the property for a long time, it’s probably not a good deal regardless of the fact that interest rates are low, so you should think hard before you decide to go from a renter to an owner.
You should also avoid properties that are in bad shape, like fixer-uppers. The costs of doing construction these days are outrageous, and properties in bad shape rarely sell at a big enough discount to compensate for all the work that needs to be done. So skip them and buy something in good shape instead.
Additionally, shop around. You are shopping for the most expensive and most complicated thing you will ever buy, so make sure to shop around, know the market, take your time, and find a house you love. That’s the best way to get a good deal – putting your hard-earned money down on a house you love.
The last consideration should be the price. Don’t worry too much about the price, though within reason. Since you’ll be owning the house for a long, long, long time, 20 years from now, what you paid today will be of little consequence. All that equity will have piled up, and you’ll have a smile on your face showing the world that you got a good deal!