Are You Ready to Buy a Home?
By John M. Lee
What should you consider before buying a home? This is an extremely important question! For most people, this is the largest financial investments they will ever make in their lives. Buying a home can be extremely exciting and owning a home is still considered to be achieving the “American Dream” by many.
With the median-priced single-family home selling for about $1.65 million in San Francisco, this is a serious investment and requires that you carefully be prepared 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, which makes 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.
The pandemic altered the home-buying patterns somewhat. The trend has been to move from high-density housing to low-density housing. Thus, our condo market went down and single-family home values have appreciated. With the current vaccine situation, and our economy slowly opening up, the condo market is starting to come back. We have had a very active first quarter in 2021 and expect the market patterns to revert back to how it was before COVID.
How hot is the market? I heard a buyer asking a real estate agent that question. His response was: “Remember how it was last year when you were looking to buy some toilet tissue? Well, the real estate market is kind of like that right now!”
Seriously though, 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 these expenses 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 it takes a minimum of five years to ride through the up and down real estate cycle 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 toward 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, then home ownership makes a lot of sense from a financial standpoint. Not only will you reap the benefits of appreciation over the years, but 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 tax-free gain if you are married, or $250,000 if single, when you sell. Those who own a home are able to keep quite a bit of money in their pockets over time that renters cannot.
The other decisions when you are ready are whether to 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 some sweat equity into it 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. Today’s market is challenging. I suggest that when you’re 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 at Compass specializing in the Richmond and Sunset districts. For real estate questions, call him at (415) 465-0505 or email email@example.com.
Categories: Real Estate