3 Factors to Consider Before You Buy a Home, Part 1

buy a home

There are many reasons you should buy a home. This article applies to owner-occupied ownership when you buy a home, only. Rental real estate is very different than owner occupied home ownership. The loans are more difficult to qualify for than owner occupied, the tax deductions are treated differently, and if you don’t hold the investment long enough you could be required to pay short-term capital gains taxes.

Here are 3 factors to consider when you decide to buy a home.

  1. Home prices are low or reasonably priced for your area.

Real estate prices fluctuate about every 7-10 years. The prices fluctuate from low to high for several reasons. Some of the reasons are 1)  If there is a big layoff in a town, everyone is trying to sell at the same time and there are few buyers, home prices may take a nosedive, 2) A major industry has moved out of a town and there are few buyers for a home, prices will go down, 3) Interest rates have spiked up and it is hard for buyers to qualify for a mortgage and therefore prices of homes may correct down.

On the other hand, prices go up sometimes when 1) Loans are easy to qualify for (as in the real estate crises from 2003-2008), and people get loans who should not have them, and there are many loan defaults in a short period of time, 2) A new high paying company may move into the area and there is a shortage of homes to buy, people start bidding up homes, as in some areas of the U.S. that have high employment and low inventory of homes, 3) New homes are not being built, and new companies move into the area quickly, so there is a shortage of homes.

You get the picture. Real estate does not go up constantly, as some beginner home buyers tend to think, there are sometimes corrections in a high market, and low markets go high for various reasons. The point here is that you don’t want to rush and buy a home in an area that you are not familiar with; the prices may be high and at the top of a market, and for reasons unknown to you are starting to come down. Know what is going on in your area, make sure you are not buying at the top of a market, unless you know you will be in the area for a long time, otherwise, you could be stuck with a home you can’t sell for more than you paid.

  1. You have had a steady job for a while.

It goes without saying that income is what pays the bills. Make sure that the company you work for is stable or your business is on sound footing before you buy a home with a mortgage. Most mortgage companies will want to see 2 years of tax statements, in addition to that, they will usually also order their own copy directly from the Internal Revenue Service. During this time also make sure you have savings in place for down payment and escrow and closing cost. It is also a good idea to have additional savings to keep in place in case of a job layoff.

  1. You plan on living in the area for several years.

As I discussed in number 1, real estate goes up and down. When prices get high, many times there is a correction and prices come down for a while. If you happen to NOT do your homework and buy in a real estate market that is about to come down, for a variety of reasons, you may find yourself upside down with your loan for a while. This will take more years to make a profit on your loan. You will have to ride out the correction, then get back your escrow and closing cost as an initial investment. Normally it takes about 4 years just to get back your escrow and closing cost as the home value increases.

If you must ride out a correction it could take many years longer. If you happen to buy at the bottom of a real estate market, you could get lucky enough to ride up the value of your home, and you could sell much faster for a profit. In any case, you should study your area, study the real estate market, study the economy or the changing of the economy in the area, and know when to buy, that is; know if you are at the bottom or top of a market. Real Estate works best when it is held long term. In normal cases, it could take as long as 8-10 years to make a profit from your real estate purchase. Use this calculator to find out what

This will take more years to make a profit on your loan. You will have to ride out the correction, then get back your escrow and closing cost as an initial investment. Normally it takes about 4 years just to get back your escrow and closing cost as the home value increases. If you must ride out a correction it could take many years longer. If you happen to buy at the bottom of a real estate market, you could get lucky enough to ride up the value of your home, and you could sell much faster for a profit.

In any case, you should study your area, study the real estate market, study the economy or the changing of the economy in the area, and know when to buy, that is; know if you are at the bottom or top of a market. Real Estate works best when it is held long term. In normal cases, it could take as long as 8-10 years to make a profit from your real estate purchase. Use this calculator to find out what mortgage pay range you will have with a particular loan when you buy a home.

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25 comments on “3 Factors to Consider Before You Buy a Home, Part 1

  1. It is really difficult to buy a home in the UK. House prices are so over-inflated. Especially given the space you actually get. Having lived in the US and had a home with a huge amount of space, a pool and beautiful surroundings, moving back to the UK you can get a tiny 3-bed semi-detached home with little room.

    • I see those little spaces on HGTV, when they are in the UK. It is unbelievable sometimes. Some areas of the U.S. are very affordable, but some are insanely inexpensive like New York, San Francisco, San Diego and San Jose — Just to name a few are insanely inexpensive.

  2. This is so important to keep in mind. We bought a house for the first time last year and it was an experience, that’s for sure.

  3. When I purchased my home, I knew I would be living there for quite some time. As a single mom, I can’t afford to move every few years. I know I will be looking into a new home probably within the next few years, so I will keep these tips in mind. Thankfully my job is fairly steady, so that part won’t be an issue.

  4. I just went through finding an apartment to rent. Can’t even think about buying at home right now. lol

  5. I am planning t buy a house by next year and this is really good information. House prices in London has rocketed. Some of the ugliest houses which I have seen are going for half a million pounds. However you have to get on the property ladder!

  6. I will definitely keep these things in mind for when I need it. Right now I’m considering a house to rent, and most of these will still apply. Trying to find something that is within price range and in the same area is so tough!

  7. Yes #2 is so important. I work for a Foreclosure firm and I sometimes why how the heck some people got their mortgage or more importantly thought they would be ok to float it

  8. Buying a house is never easy, and when you think that you made up your mind and found the dream home, a moment later you think “What if I’m missing on a better house”!

  9. What a great post definitely would have come in handy when I purchased my home. This is definitely one of those things that can drive you up a wall! I will be sure to share this to any of my first-time home buying friends :)!

  10. These are 3 great things to consider before you buy a home. It is so important to remember that a home is something you will have for a very long to time so you better make sure you love the area. Thanks for sharing the tips.

  11. A house is a good investment. I think these are 3 factors that people should really consider because buying a house is a huge commitment.

  12. We’re actually closing on a home next month. These are all really good points, especially the last one. That was something I had to discuss with my husband over and over since we have two little ones who will be officially entering school age this year and I needed to make sure the school system was good. Thanks for sharing these points.

  13. I’m telling ya’, thank you so much for sharing this. We are in this process right now and need all the help we can get. We do not know anything about buying or renting, really in truly.

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