Columbia SC Home Buying Tips
Recent events in the housing market have many people questioning if home ownership is still something to aim for. Even as the nation continues to recover from the economic downturn, the benefits of purchasing a home of your own remain as strong as ever.
1. Good Investment
Renters receive no return on what they pay out in monthly rent – it’s virtually money out the window. Even though renters are paying for living space, committing to a home purchase and monthly mortgage creates much more potential for a return on the investment. As you pay your mortgage each month, you are building equity and increasing your net worth. Equity is the value of the property that you own or what you have paid off each month. A home’s equity is also combined with the amount of appreciation, or amount your home has increased in value over time.
Building up your home’s equity also opens the door to mortgage refinancing and home equity loans.
Homeowners then have more financial flexibility towards financing large expenses such as remodeling, college tuition or debt consolidation. Of course it’s always possible that the value of your property will go down and not up, as many homeowners throughout the country have experienced over the past few years. Still, if you look at the value of real estate over the long term it has gone up over time. Like any investment buying a home involves risk – research the real estate market in your area to help you make a decision that feels right for you.
2. Tax Benefits
As you diligently pay your monthly mortgage, your tax advantage increases over the years. When you are paying for your own home you have the ability make a deduction on your federal income tax return for what you have paid towards the interest on the mortgage and property taxes. Some states also make allowances for additional deductions. It pays to check with your accountant or tax advisor in regard to your allowable state deductions.
3. Financial Control
Paying for a home of your own prevents you from being subjected to surprise rent increases, especially if you have chosen a fixed rate mortgage. It also removes the stress of lease renewal. For many, becoming a homeowner is a solution for beating the high cost of retirement. It is entirely possible to pay off your home and live out your retirement years rent-free! Of course, as long as you own the home you will be responsible for the property taxes and insurance costs.
4. Freedom
Let’s face it, renting is fine for many, however, there usually comes a time when you want to call the shots and be in control of your personal space. Most rental situations dictate everything from paint colors to pets to window treatments. Forget about remodeling or making home improvements, and why would you want to invest time and money in to a place that is not even yours? As a homeowner you can also resolve issues on your own, such as home repair and maintenance. Owning a home of your own allows for personal expression and control.
5. Pride of Ownership
There is a great deal of satisfaction that comes from buying a house. It is an experience that provides independence and privacy. Because it is typically the largest single investment that most of us will ever make, it remains an achievement to be proud of.
When it comes to buying a home, the ability and willingness to negotiate is a must for both the buyer and seller. In general, sellers ask for more than they are actually willing to accept and buyers offer less than they are willing to pay. The trick is to find the perfect balance so you, as a buyer, feel good about the purchase price without leaving the seller feeling insulted.
Real estate is a business that either favors the buyer or seller, hence the terms buyer’s market and seller’s market. When negotiating a purchase price, it’s important to know which of the two you are in. As the buyer, you will have the best chance at a successful negotiation if you research the price of other comparable homes in the area before making an offer.
Not every offer is accepted, so don’t be disheartened if your first offer isn’t a winner. In some cases, the seller will make a counteroffer for your consideration. Have you ever heard the old saying, “never take the first offer?” The same is true in real estate, and almost every seller knows it. Your first offer is likely to be less than you are actually willing to pay, which leaves you some bargaining room.
There are a number of reasons why a seller may choose to reject an offer, including a feeling that the offer was just too low, the house is newly listed on the market or another offer may be higher than the one you made. In some cases, sellers may also reject an offer that includes owner financing or other requests that are impossible to meet. One example may be an offer that requires the house be available within a certain amount of time. Most contracts require that the seller move out within 30 days, but anything less would require negotiation.
Before you sign anything relating to a real estate transaction, make sure you read over every detail of the agreement. If you have any questions, ask your real estate agent. After all, real estate is their business and they are there to help you through every step.
Buying a home is a major emotional and financial decision. Often times, people want to buy a home; however, emotionally cannot afford to commit to the home-buying process. They are, in fact, afraid.
“My payment will be too high” or “What if I lose my job,” are some of the “excuses” people often use.
Here are some of the major advantages of buying a home:
- Quality of Life. Home-buying and living in your home affects the quality of life. It adds to your confidence, giving you a sense of pride and satisfaction. You have a sense of emotional well-being as well as peace of mind.
- Tax Deductibility of Mortgage Interest. The entire mortgage interest payment is tax-deductible and the “net” cost of the mortgage payment actually puts money in your pocket.
- Tax Deductibility of Property Taxes. Similarly, property taxes are due and payable and may seem like a lot of money. Property taxes are also tax deductible and you get it back in the form of tax savings.
- Appreciation Potential. Typically and historically, nationwide property values have gone up in value at around 7% per year. In some areas properties have, in certain good economic times, appreciated at the rate of over 20% per year. At 7% conservative rate, the property doubles in value every 10 years. So, a property worth $500,000 will be worth $1,000,000, equaling a gain of $50,000 on a yearly basis. For an average person, it is difficult to save that kind of money.
- Deferred Capital Gains. Real estate investment capital gains can be deferred by exchanging the property for like-kind property. So, when the property appreciates and you decide to sell it and do no want to pay the capital gains tax, you can buy another property of like-kind and avoid capital gains tax. This allows you to switch properties when required.
- Once in a Lifetime Exclusion. Upon the sale of a personal residence, the IRS allows an exemption and one does not have to pay taxes on a gain of $250,000, if single and up to a gain of $500,000, if married. For example, if you’re single and buy a property and live there for five years and the property appreciates by $250,000, you can sell the property and not pay any taxes at all.
- Principal Accumulation. This is strongly tied to appreciation in the property value. Payments made toward the mortgage payment help you accumulate principal which essentially helps you establish a reserve savings account which you can later tap into by obtaining an equity line of credit or getting an equity loan, if needed.
- Pride of Ownership. It is fun to invite people to “your” home and feel good about it. It also instills confidence in your family, your children and makes them more confident individuals.
- No Landlord. You are in-charge and do not have to deal with a landlord who might not make repairs or maintain the property as you would like.
- Leverage. Where else can you buy this size of an investment with 0-5-10% down. You can buy a property for a personal residence for as low as zero down if your credit is good, and watch the investment grow. This, in turn, allows the net investment return to be much higher (than the actual appreciation rate on the value of the property). To follow up on the example earlier, if the property grows at 7% and doubles in value, since the amount invested in buying the property might be only $50,000 (at 10% down payment), the actual return is much higher on $50,000 investment.
- The Real Cost of Renting! At $700 per month, with a 6% rental increase per year, you will pay $110,719 over a 10 year period. If the rent is higher, you can count on paying much more and not getting any return or tax benefits at all.
Can you add more to this list of advantages to buying a home? We’d love to see what you could add to our list. Just use the comment link below.
While you’re trying to decide when the best time to buy real estate might be, line up a team who can help you accomplish your goal when you decide to move forward. You can do this by researching online, attending open houses in the area and asking a real estate agent to keep you on top of market fluctuations.
Your decision to buy should be based on your personal financial situation, not on the national or global economy.
If you’re a home buyer, make sure you have job security, a relatively healthy economy in your local area and a plan to stay put for at least 10 years.
Good economic news will help fence-sitters make the decision to get serious about moving. Bad news of any sort can cause the market to stall.
Find a good local real estate agent to work with who understands your needs, and wait to buy until the time is right for you. It could take you a year or so to make the final decision. Some agents don’t have the patience to stick it out.
One of the most difficult aspects of the current home buying process is financing the transaction. Find a mortgage broker who is a real professional, has been in the business for years and who understands what current underwriters will require from you to process your loan.
Assemble all the financial documents you’ll need for loan approval even before you start looking. Ask your real estate agent or broker to have your loan package previewed by an underwriter so you know beforehand if there are any problems.
Take care of any possible closing issues in advance so they don’t cause last-minute delays in closing. Your real estate agent can help you with this area.
What you should put into a real estate sales contract to protect yourself, and why you shouldn’t overdo it…
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