Should you buy that first home or remain a renter? It's a classic question made much more complicated by the housing market's recent crash. How do you know if you're ready? Will you be able to afford a mortgage, and all the fees associated with securing a loan and closing? And how can you tell if the local market has fallen as far as it's going to, and that you're not overpaying?
Three young, potential homebuyers are pondering these very questions. They asked our What Works Now experts where they should buy or rent, and got some helpful answers.
Should you buy that first home or remain a renter? It's a classic question made much more complicated by the housing market's recent crash. How do you know if you're ready? Will you be able to afford a mortgage, and all the fees associated with securing a loan and closing? And how can you tell if the local market has fallen as far as it's going to, and that you're not overpaying?
Three young, potential homebuyers are pondering these very questions. They asked our What Works Now experts where they should buy or rent, and got some helpful answers.
First, there's Gen-Y-er Rosy, who has been living in a bright, airy studio for six years. She's happy enough there, but a promotion at work has made her start to think about upgrading and making an investment; she doesn't want to pay more rent on just a bigger place. So she asked the What Works Now experts, how she can know if she's ready to buy.
Of course, there's no one-size-fits-all answer to that question. Lynnette Khalfani-Cox, a former Wall Street Journal editor and author of "Your First Home: The Smart Way to Get It and Keep It," says that consumers are right to be cautious. "For most people [a home] is the single largest purchase they'll make in their entire lives."
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In today's market, a potential buyer should not only consider whether they can afford a home now, but also six months or a year from now, says Khalfani-Cox. The buyer has to consider whether she'll be able to afford that home over many years, in any of a variety of financial situations that might be less ideal than her current one. She should also take stock of her savings (does she have enough for a down payment and unforeseen costs, like major repairs?), her existing debt (is she credit worthy?), and her personal situation (is she emotionally ready to put down roots and take care of a home?).
Todd Dal Porto, Home Loan Enterprise Sales Executive for Bank of America, concurs and adds that a potential buyer has to consider how her job, marital and family situations might change in the next few years and dramatically alter her housing needs.
He suggests using tools like Bank of America's Home Loan Guide and AOL's First Time Home Buyer's Guide to learn about the buying and mortgage processes before deciding if you're ready to take them on.
Another Gen-Y renter, Nancy, was hoping to buy while the federal government was offering a tax credit for first-time buyers. Now that's expired, and she asked the experts if there is other help that might make homeownership more affordable for her?
In fact there are several programs to assist homebuyers, and banks are still willing to work with potential borrowers to help them find assistance with their down payments or closing costs. Dal Porto points out that Bank of America's loan officers have access to a website that lists 2,500 such programs around the country, and can direct people to local programs that are the right fit. "Many of these programs offer favorable repayment terms and sometimes there are even grants available, which is an exciting option."
Moreover, Khalfani-Cox points out that there are plenty of ongoing tax benefits to homeownership, such as a tax deduction for the interest on your mortgage and a federal deduction for your local property taxes. "Also, many homeowners will qualify to have up to $250,000 in profit on the sale of their home [be exempt from capital gains tax]," she says. If you're married you can plan to skip the capital gains tax on up to $500,000 in profit when you eventually sell your place.
Simmi, a 20-something house-hunter wonders how to know if she's being offered a fair price. "How do I know if something is overvalued?" she asks.
Dal Porto points out that real estate values are a very local thing. A fair price in a particular neighborhood might be far too much or too little in a neighborhood nearby. "Consumers are encouraged to evaluate neighborhoods very closely," he says. And he reminds buyers that they shouldn't go into a home purchase assuming its value only will go up. "You have to consider all the possible outcomes."
Khalfani-Cox advises using the Internet to research prices and market values. Some of her favorite resources are Zillow, Property Shark and HomeGain. "With any of these you can just type in the home address and the ZIP code and they'll spit out a value for you." Consumers can also use the Case-Schiller Price Index to check out home values and pricing trends in their area.
To supplement these rough estimates, she suggests talking to local real estate agents about "comps," or the prices that comparable homes in the neighborhood have recently sold for, which is probably the best way to gauge the real market value of a home you're considering.
The decision to buy, especially a first home, is complex and life-changing, but with handy tools and savvy advice, these young women are off to a good start.
Still trying to decide which is right for you? Here are some AOL Real Estate guides to help you no matter whether you choose to buy or rent:
Three young, potential homebuyers are pondering these very questions. They asked our What Works Now experts where they should buy or rent, and got some helpful answers.
Should you buy that first home or remain a renter? It's a classic question made much more complicated by the housing market's recent crash. How do you know if you're ready? Will you be able to afford a mortgage, and all the fees associated with securing a loan and closing? And how can you tell if the local market has fallen as far as it's going to, and that you're not overpaying?
Three young, potential homebuyers are pondering these very questions. They asked our What Works Now experts where they should buy or rent, and got some helpful answers.
First, there's Gen-Y-er Rosy, who has been living in a bright, airy studio for six years. She's happy enough there, but a promotion at work has made her start to think about upgrading and making an investment; she doesn't want to pay more rent on just a bigger place. So she asked the What Works Now experts, how she can know if she's ready to buy.
Of course, there's no one-size-fits-all answer to that question. Lynnette Khalfani-Cox, a former Wall Street Journal editor and author of "Your First Home: The Smart Way to Get It and Keep It," says that consumers are right to be cautious. "For most people [a home] is the single largest purchase they'll make in their entire lives."
Essential How-To-Guides on AOL Real Estate: Home Buying, Selling, Renting, Moving and Home Improvement
Todd Dal Porto, Home Loan Enterprise Sales Executive for Bank of America, concurs and adds that a potential buyer has to consider how her job, marital and family situations might change in the next few years and dramatically alter her housing needs.
He suggests using tools like Bank of America's Home Loan Guide and AOL's First Time Home Buyer's Guide to learn about the buying and mortgage processes before deciding if you're ready to take them on.
Another Gen-Y renter, Nancy, was hoping to buy while the federal government was offering a tax credit for first-time buyers. Now that's expired, and she asked the experts if there is other help that might make homeownership more affordable for her?
In fact there are several programs to assist homebuyers, and banks are still willing to work with potential borrowers to help them find assistance with their down payments or closing costs. Dal Porto points out that Bank of America's loan officers have access to a website that lists 2,500 such programs around the country, and can direct people to local programs that are the right fit. "Many of these programs offer favorable repayment terms and sometimes there are even grants available, which is an exciting option."
| I'm moving this year. | |
|---|---|
| Will move at least once in the next 10 years. | |
| In it for the long haul, staying put for at least 20 years. |
Moreover, Khalfani-Cox points out that there are plenty of ongoing tax benefits to homeownership, such as a tax deduction for the interest on your mortgage and a federal deduction for your local property taxes. "Also, many homeowners will qualify to have up to $250,000 in profit on the sale of their home [be exempt from capital gains tax]," she says. If you're married you can plan to skip the capital gains tax on up to $500,000 in profit when you eventually sell your place.
Simmi, a 20-something house-hunter wonders how to know if she's being offered a fair price. "How do I know if something is overvalued?" she asks.
Dal Porto points out that real estate values are a very local thing. A fair price in a particular neighborhood might be far too much or too little in a neighborhood nearby. "Consumers are encouraged to evaluate neighborhoods very closely," he says. And he reminds buyers that they shouldn't go into a home purchase assuming its value only will go up. "You have to consider all the possible outcomes."
Khalfani-Cox advises using the Internet to research prices and market values. Some of her favorite resources are Zillow, Property Shark and HomeGain. "With any of these you can just type in the home address and the ZIP code and they'll spit out a value for you." Consumers can also use the Case-Schiller Price Index to check out home values and pricing trends in their area.
To supplement these rough estimates, she suggests talking to local real estate agents about "comps," or the prices that comparable homes in the neighborhood have recently sold for, which is probably the best way to gauge the real market value of a home you're considering.
The decision to buy, especially a first home, is complex and life-changing, but with handy tools and savvy advice, these young women are off to a good start.
Still trying to decide which is right for you? Here are some AOL Real Estate guides to help you no matter whether you choose to buy or rent:
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Want to learn more about home buying and home finance? If so, you won't want to miss
our online discussion with industry experts,
"What Works Now: Smart Moves When Buying a Home,"
created by AOL Real Estate in participation with Bank of America Home Loans.
Watch it now on AOL Real Estate.
Want to learn more about home buying and home finance? If so, you won't want to miss
our online discussion with industry experts,
"What Works Now: Smart Moves When Buying a Home,"
created by AOL Real Estate in participation with Bank of America Home Loans.
Watch it now on AOL Real Estate.