Owning your own home is a smart investment. Prices go up. Over the long term, your home will increase in value. Meanwhile, you have to live somewhere, and why pay your landlord’s mortgage when you can pay your own? If you rent for 30 years, at the end of the 30 years you will have nothing. If you own a home for 30 years, at the end of the 30 years you will own the home free and clear and it will have doubled or tripled in value. That’s a retirement plan.
Home owners also enjoy favorable tax breaks like the mortgage interest deduction, and the capital gains exemption.
Here is my advice for Home owners to-be:
Are you ready to buy a home?
Owing a home is a big responsibility. When you are renting you can pick up and move at the drop of a hat. As a homeowner, your living situation is not as flexible. It’s a big hassle to sell and the transaction fees are costly. Before you purchase I recommend to be certain you are going to be staying in the area for at least 3 years. You will also be responsible for property maintenance.
Make sure your finances are in order. If you are carrying a lot of credit card debt or student loans, it may be better to pay off your debt before buying a house. Check your credit score, if its below 680 you will need to work with a credit repair company to raise your credit score in order qualify for a loan. How much money do you have in the bank? For most first time home buyers saving up the down payment is the biggest hurdle. Thankfully there are a lot of low down payment loan programs that make buying your first home easier. Some good loans to be aware of are 10% down, 5% down, and FHA 3.5% down loans– keep in mind that if you are putting less than the traditional 20% down you will have the extra cost for PMI.
In Los Angeles, real estate prices are higher than other parts of the country. For the price you can buy a 1 bedroom condo in Los Angeles, you could buy a new construction two story house in the Midwest. Because prices are high, it is not uncommon for parents to give downpayment help to first time home buyers here. One trend I am seeing with Millennials, is Parents are giving their kids the inheritance early- so they can use it to buy a home. This makes a lot of financial sense, because you can put that money to good use working for you instead of laying dormant in a checking account for ten plus years. I always recommend for first time buyers to talk with their family and ask for help.
Tips for First Time Home Buyers:
If you are like me you want everything right now and hate waiting. The last thing you want to hear when you are trying to buy your first house is that you need to be patient. From my experience, it takes on average three to five years to buy your first house in Los Angeles, from initial planning stages to final purchase. Los Angeles is a big city and has big city prices that are higher than the US national average. Higher prices make home purchase more difficult. Zillow says the average age of first time homebuyer is 31, but in LA I think it’s a little higher because the prices are higher. Another factor, is that in a big city prices fluctuate wildly. Depending on where the market is in the real estate cycle, prices can go up or down as much as 15%-20% in a year. Saving a down payment takes time.
Don’t be Afraid to ask questions
When it’s your first time everything is new. You will have a bazillion questions rolling around in your head. Don’t be afraid to ask, ask, ask. That’s the best way to learn. Don’t just ask your real estate agent or lender either. Ask your friends and family. Watch HGTV. This is an important decision. It’s a good idea to rally the wagons and confer with your trusted circle of advisers.
Buying a house can be SCARY! It is a big commitment and the biggest purchase you’ve ever made in your life. At least one meltdown when buying a home is not unheard of. Even when you feel overwhelmed and stressed out, stick with it, you won’t regret it. I hear way more often from people regret of not buying when they could, then working a little harder, or saving a little more.