Real Estate

Real Estate – John M. Lee

What to Know Before You Buy

By John M. Lee

What should you consider before buying your first home? This is an extremely important question! For most people, this is the largest financial investment they will ever make in their lives. Buying a home can be extremely exciting and owing a home is still considered by many to be achieving the American Dream.

 With the median priced single-family home selling for about $1.6 million in San Francisco, this is a serious investment and requires that you prepare carefully and consider your choices before you make the jump into home ownership.

 Can you afford to buy a home? The prices are high but the interest rates are still at historic lows making the monthly payments more affordable. What is the worst that can happen if you take out a 30-year mortgage? You will have the home all paid for in 30 years and own the home free and clear. What is the alternative? Rent for the next 30 years and still not own a home.

 With the impending initial public offerings (IPOs) of Uber, Lyft, Airbnb, Pinterest and Slack this year, there may be quite a few more buyers who are cashing out of these companies and looking to purchase homes in this area. Some reports are predicting that prices will go much higher. They also surmise that some sellers are delaying their plans to sell until after the IPOs hit the market.

 When buying a home, there are a lot of costs, including the down payment, loan fees, title and escrow charges, moving expenses and furnishing the home. In addition, there will be ongoing expenses such as the mortgage, property taxes, insurance and maintenance. Make sure that you have enough to pay for these necessities before making a commitment.

 The method of financing is extremely important. If possible, with today’s low mortgage interest rates, I recommend getting a fixed rate loan. Some lenders are offering low down payment loans again if you absolutely need it. 

 Home ownership is only a smart move if you plan on keeping the home for a while. I think at a minimum it takes five years to ride through the up and down real estate cycles if you need to. There are so many costs associated with the purchase and sale of a home that it is next to impossible to come out ahead if you sell a short time after you purchase. You will also be unlikely to have built up any equity in your home since most of your mortgage payment initially will be going towards the interest on the loan, not the principal. 

 There is nothing wrong with renting if you want to stay flexible. Wait to buy a house until you are in a place where you want to put down roots. Once you have gotten to that point, home ownership makes a lot of sense from a financial standpoint. Not only will you reap the benefits of appreciation over the years, there are also tax advantages to owning a home. You will be able to write off the mortgage interest and property taxes on your federal and state income taxes (subject to certain restrictions). You will be able to realize up to $500,000 in tax-free gains if you are married or $250,000 if you are single when you sell. Those who own a home are able to keep quite a bit of money in their pocket over time that renters cannot.

 There are many decisions you need to make when you are ready to buy a home. Should you buy a single-family home, a condo or a multi-unit property to help with the mortgage. Do you need a home that is all fixed up or would you prefer to buy a fixer-upper and put in some “sweat equity” to build up value? What amenities and features are important to you?

 Do you need a home that is close to work to minimize the commute? Do you need to be close to public transit? How about the school district for your children? Is a community important to you? Do you want to be close to shops and other conveniences? How much outdoor space do you need?

 As you can see, making the decision to purchase is only the first step. Implementing that decision will require much more work and guidance. I suggest that when ready, work with a competent real estate agent, lender, accountant and perhaps an attorney if necessary to develop a plan for execution. Finding the perfect home can be exciting and rewarding with the right team in place and will provide long-term financial security for you and your family!

 John M. Lee is a broker for Compass specializing in the Richmond and Sunset districts. If you have any questions, call him at (415) 447-6231 or e-mail johnlee@isellsf.com.

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