An unbiased guide to buying your first home

Real questions with honest answers

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A: A simple question but one that requires a complex answer. First, are you able to buy? If you do not have the requisite down payment or credit history you may not even be able to buy. The first thing to do is to talk to one or more lenders and find out how much you can borrow. This will tell you how much you can pay to purchase. If your minimum requirements in housing are more than you can pay forget it. Next you need to do a detail budget for your household including ALL costs. For example, appliances wear out and need to be replaced so have some reasonable capital expense in your budget. Plug into the budget the monthly payments on the possible house purchase and make sure you include everything including property taxes, utilities, insurance, maintenance, capital replacement reserve and any other costs. If your budget exceeds you income and if you can not find ways to cut other expenses you must scale back how much you will borrow and then determine if you can pay for your minimum housing requirements. One adjustment you should make in your budget is to include the tax saving benefit of ownership because, if you itemize deductions you can deduct the interest part of your monthly payments as well as the property taxes.

If you able to buy it still does not mean you should buy. While housing prices have appreciated rapidly in the last few years this will not always be the case. Every time you buy and then sell a house you will pay many costs such as title transfer, escrow fees, recording fees and most important, brokers commissions which can be 5% of the total sale price. Therefore if you do not plan to stay in the house for at least 3-5 years you may be better putting off a purchase decision. This also means you must think about family plans. If you buy a three bedroom house but plan to expand you family so you need more room, consider that as well.

Buying is not for everyone. Decide if you want the responsibility and can put in the time for all the require maintenance and gardening. Be honest about your life style and what is really important to you. Also consider how stable your income is. It would be terrible to lose your job, default on you loan and both ruin your credit and lose your down payment. For this reason alone, have some serious cash reserve to help you through a rough spot before you can safely buy.

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