Owning a Home

Home, Sweet Home: The Basics of Buying and Owning

It is the brick and mortar of the American dream: Buying and owning your own home. But the path can be complex and challenging, and it is filled with potential pitfalls - money-pit falls.

Here are some tips to get you started:

Start by checking your credit. Obtain a copy of your credit report and correct any errors or discrepancies you find. You can begin that process here: www.annualcreditreport.com/cra/index.jsp
Determine how much house you can afford. Try using our calculator: Mortgage Qualifier Calculator. Your monthly housing costs -- including mortgage principal and interest, property taxes, homeowners insurance and any private mortgage insurance that might be required -- should equal no more than 36 percent of your gross income. A rule of thumb is to aim for a home that costs no more than two-and-a half times your gross annual salary.
As you select a neighborhood, pay special attention to areas with highly rated schools. When it comes time to sell, you'll find a strong school system is a valuable asset. When house hunting, use a digital camera to take pictures or even videos of homes you are considering. Also take copious notes.
Before you make an offer, use the Internet to collect data on at least three homes that have recently sold in the area. This site can be particularly valuable: www.zillow.com. Calculate the difference between the original asking prices and the eventual selling prices. Use that as a guide as you and/or your agent draft an offer.
The contract of sale (purchase agreement) should be contingent on your obtaining a mortgage, a home inspection and a guarantee that you can do a walk-through inspection 24 hours before closing the deal.
Avoid PMI (private mortgage insurance) by putting at least 20 percent down on the purchase price of the home. If you get a loan to finance $100,000, your PMI will cost about $500 annually. This insurance protects the lender's investment if you default on the loan. But it's not required if you pay 20 percent of the purchase price up front.
To buy, or not to buy, points. When picking a mortgage, you usually have the option of paying additional points -- a portion of the interest that you pay at closing -- in exchange for a lower interest rate. It can pay to do this, especially if you stay in the house for at least five years. A "point" is equal to 1 percent of the total loan.
Negotiate to persuade the seller to pay most closing costs. Such costs include application/origination fees, credit report fees, points, attorney's fees, document preparation fees, surveys and inspections.
Owning a home has numerous advantages. You can deduct mortgage interest and property taxes from your federal income tax, and - despite recent setbacks in the housing market - it still is likely that your home will appreciate in value, which will give you a nice profit when you do decide to sell.
As a monthly expense, mortgage payments have the advantage of being somewhat inflation proof, though your homeowners insurance and taxes might increase. In contrast, if you rent, your landlord is likely to raise your rent to keep up with inflation or the overall market.

A wealth of home-buying information assembled by the U.S. Department of Housing and Urban Development can be found here: www.hud.gov/buying/index.cfm

And here is a convenient mortgage payment calculator: Mortgage Qualifier Calculator.

go back to top