Before You Buy a Home - Look at Eight Reasons to Buy a Home
If you're like most first-time home buyers, you've probably listened to friends', family's and coworkers' advice, many of whom are encouraging you to buy a home. However, you may still wonder if buying a home is the right thing to do. Relax. Having reservations is normal. The more you know about why you should buy a home, the less scary the entire process will appear to you. Here are eight good reasons why you should buy a home.
Pride of Ownership
Pride of ownership is the number one reason why people yearn to own their home. It means you can paint the walls any color you desire, turn up the volume on your CD player, attach permanent fixtures and decorate your home according to your own taste. Home ownership gives you and your family a sense of stability and security. It's making an investment in your future.
Although real estate moves in cycles, sometimes up, sometimes down, over the years, real estate has consistently appreciated. The Office of Federal Housing Enterprise Oversight tracks the movements of single family home values across the country. Its House Price Index breaks down the changes by region and metropolitan area. Many people view their home investment as a hedge against inflation.
Mortgage Interest Deductions
Home ownership is a superb tax shelter and our tax rates favor homeowners. As long as your mortgage balance is smaller than the price of your home, mortgage interest is fully deductible on your tax return. Interest is the largest component of your mortgage payment.
Property Tax Deductions
IRS Publication 530 contains tax information for first-time home buyers. Real estate property taxes paid for a first home and a vacation home are fully deductible for income tax purposes. In California, the passage of Proposition 13 in 1978 established the amount of assessed value after property changes hands and limited property tax increases to 2% per year or the rate of inflation, whichever is less.
Capital Gain Exclusion
As long as you have lived in your home for two of the past five years, you can exclude up to $250,000 for an individual or $500,000 for a married couple of profit from capital gains. You do not have to buy a replacement home or move up. There is no age restriction, and the "over-55" rule does not apply. You can exclude the above thresholds from taxes every 24 months, which means you could sell every two years and pocket your profit--subject to limitation--free from taxation.
Preferential Tax Treatment
If you receive more profit than the allowable exclusion upon sale of your home, that profit will be considered a capital asset as long as you owned your home for more than one year. Capital assets receive preferential tax treatment.
Morgage Reduction Builds Equity
Each month, part of your monthly payment is applied to the principal balance of your loan, which reduces your obligation. The way amortization works, the principal portion of your principal and interest payment increases slightly every month. It is lowest on your first payment and highest on your last payment. On average, each $100,000 of a mortgage will reduce in balance the first year by about $500 in principal, bringing that balance at the end of your first 12 months to $99,500.
Consumers who carry credit card balances cannot deduct the interest paid, which can cost as much as 18% to 22%. Equity loan interest is often much less and it is deductible. For many home owners, it makes sense to pay off this kind of debt with a home equity loan. Consumers can borrow against a home's equity for a variety of reasons such as home improvement, college, medical or starting a new business. Some state laws restrict home equity loans.
Finding a Real Estate Agent
Finding a good real estate / broker is essential to enjoying a painless real estate transaction. The saying is "20% of the agents do 80% of the business," and it is true. The question is how can you find a good real estate agent? The best agent for you doesn't necessarily work at the largest brokerage, close the most transactions or make the most money. The best agent for you is an experienced professional who will listen to you, conduct herself in an ethical manner and knows your market.
1. Realtors® and Real Estate Agents
All Realtors® are licensed to sell real estate as an agent or a broker but not all real estate agents are Realtors®. Only Realtors® can display the Realtor® logo. Realtors® belong to the National Association of Realtors and pledge to follow the Code of Ethics, a comprehensive list containing 17 articles and underlying standards of practice, which establish levels of conduct that are higher than ordinary business practices or those required by law. Less than half of all licensees are Realtors®.
Most real estate agents stay in business because satisfied clients refer them to friends, family, neighbors and coworkers. Ask the people around you who they have used and ask them to describe their experiences with this real estate agent. Successful agents make customer satisfaction their number one priority and put their customers' needs before their own. Try to find an agent who goes above and beyond her responsibilities. She'll be the agent whose praises your friends sing loudest.
3. Search Online for Agent Listings
There are plenty of Web sites that will refer agents to you but that is no assurance of quality. The agents they refer are those who have paid the Web site owners a fee to be listed in their directory. A better bet is to Google the top real estate companies in your area, go to those Web sites and look up profiles of individual agents at offices near you. Agents who are experienced will tell you but newer agents might have more time to spend with you. Look for customer testimonials.
4. Attend Open Houses
By going to open houses, you can meet real estate agents in a non-threatening working environment and interact with them. Collect business cards and make notes on them. If you're thinking about selling your home, pay attention to how the agent is showing the home. Is she polite and informative; appear knowledgeable? Does she hand out professional-looking promotional material about the home? Is she trying to sell features of the home? Or is she sitting in a corner reading a book, ignoring you?
5. Track Neighborhood Signs
Pay attention to the listing signs in your neighborhood. Make note of the day they go up and when the sold sign appears. The agent who sells listings the fastest might be better for you than the agent with the largest number of "for sale" signs. Results speak volumes.
6. Using Print Advertising
Real estate agents run real estate ads for two purposes. The first is to sell specific real estate. The second is to promote the real estate agent. Look in your local Sunday newspaper for ads in your targeted neighborhood. Then look up the Web sites of the agents who are advertising. These agents could be specialists in your neighborhood. Call and ask them about their experience.
7. Recommendations from Professionals
Ask other real estate agents for referrals. Agents are happy to refer buyers and sellers to associates, especially if the service you need is not a specialty of the agent who is referring you. Some agents specialize in residential resales while others work exclusively with new home builders. Other agents sell only commercial or investment property. Mortgage brokers are also a resource for agent referrals as many brokers have first-hand knowledge of exceptional agents. Pros tend to refer pros.