Rent or Buy?

Should you rent or buy?

So, you are done with renting and dealing with landlords. The market is good. Mortgage rates are low. You think it is time for a home of your own. Maybe you just got married, or moved, or had a baby. Maybe you want a place you can fix up your own way. Maybe you just like the idea of being a homeowner. Whatever is motivating you to leave the land of renting for home ownership, you are not alone.

Home ownership is part of the American dream and often makes more financial sense than renting. When you own, you may have the responsibility for repairs, taxes, heating and the like, but unlike your rent, which goes right into your landlord's pocket, your mortgage payment is buying you equity in the property that is your home, and, of course, as you probably know, the interest on your home mortgage is totally tax deductible.

Home ownership is a financial investment as well as a life-changing event. You need to sit down and take a realistic look at both your finances and your short-term and long-term goals to decide whether or not buying rather than renting is for you. All real estate markets are local and conditions vary widely. All couples, families, and individuals have different and unique housing and financial preferences and needs as well. There is no "one size fits all" solution.

For instance, if you plan to move within the next five years renting is, in most cases, actually going to be your better, cheaper option. But if you are ready to stay put for a while, or if rents are skyrocketing in your locale, but there are lots of foreclosed properties for sale and you have your financial house in order with a 20 percent down payment and some extra for closing costs and moving, now is a great time to buy.

What You Need to Know

It's a long way from taking virtual tours of houses for sale on the internet to making your own home ownership dream come true. The key to finding and getting the home of your dreams is to think ahead and follow a few simple rules. I've bought and sold several homes of my own and for four years I sold residential real estate for a living. I've seen all the mistakes a first-time homeowner can make (not to mention having made many of them myself). Buying your first home can be a horrible or wonderful experience. Gathering information, taking an honest financial and lifestyle inventory and getting help from competent professionals can make all the difference. If you really do your homework, you will end up with a better, happier, first time home buying experience.

Do some research.

Whether you are a single person buying the house just for you, half of a couple or larger family unit making the purchase, you need to sit down and really evaluate your housing needs and preferences. Does buying really make sense right now? Can you afford it? If the answer to both questions is yes, the next step is to figure out the basics.

Make two lists—'must haves' and 'would be nice.'

Think in terms of things like the neighborhood, number of bedrooms, large vs. small yard, townhouse or condo vs. single-family suburban house, city vs. country, new construction vs. older home, bathrooms, garages, swimming pools, schools and shopping. There is so much to choose from. You need to narrow down your options before you start to look. Every family has its own personality and lifestyle considerations. Talk about yours honestly before you set out on a real-life search. Most people pretty much know what they want, but many have never verbalized it or thought about it. Especially if you are a couple or whole family, or even two unrelated singles buying together, you need to at least be starting with some parameters in mind.

Surf sites for photos of actual houses and virtual tours and then discuss them.

Drive through neighborhoods that interest you if you have time. Attend open houses on weekends. This gives you a chance to see the insides of real houses and meet and size up a variety of real estate agents. You will learn a lot this way, both about what you really want in a home, and what is realistically available in your price range. Once you have done this, it is time to choose a good real estate agent who can guide you through the rest of the process with confidence.

As a first time buyer, you absolutely need a real estate agent and it is important to find one you trust and feel comfortable with.

This person will be a part of your team and will be working with you and for you from first showing to the day the deal closes. Most areas use multiple listings, so one agent will be able to arrange everything. This one person will be a key player in your home buying experience. A good agent will go over your finances with you, help you get mortgage pre-approval (a must before you start actually looking at houses), set up showings, provide information on communities, and help you through the complicated process of making an offer, getting inspections, dealing with bank appraisers, mortgage requirements and troubleshooting everything until the deal is closed—all usually at NO cost to you, the buyer. Remember, this may be your first time at this, but your agent is a professional and does this all the time. Nine times out of 10, a good agent can get you a better deal than you could get for yourself. You might be able to buy your second or third house without an agent—but definitely not first.

Once you've found your dream house make an offer, knowing that there will probably be some negotiation on the final price.

Here is where an experienced agent can be particularly helpful. Never (and I do mean NEVER) buy a house without getting a home inspection or engineers report. Usually, once your offer is verbally accepted and a contract of sale drawn up, you will be free to set up inspections and should definitely do so. Things like termites and radon, not to mention leaking roofs and rotting beams often show up, especially in older homes. These need not be deal breakers, but you do need to know what you are getting into and the seller needs to either fix things or lower the price. The negotiations are not over until they are over.

Know when to let go.

If you and the seller cannot see eye to eye or if major structural defects come to light that should be deal breakers, know when to let go. One rule of real estate is that no house is the last house. If you miss one house, even one you really wanted, there will always be another around the corner that suits you just as well—maybe even better. You are choosing from a specific pool of properties on the market at the time you are looking. New properties come on the market every day of every week. Remember that when you are negotiating. Do not fall in love with your new home until after the haggling is finished.

The Final Walk Through and Signing the Papers

You are in the home stretch. The mortgage commitment has been made, the title is clear, the paperwork is all done, and it is time to close the deal. Bring your checkbook and a certified check for your cash down payment and fasten your seat belt. You will be writing checks to a variety of people at the closing and you will probably meet the jackpot city seller for the first time. Closing costs for buyers vary from place to place but include such things as mortgage insurance, lawyers’ fees and transfer taxes. You need to have an idea of how much these closing costs will be and have cash in the bank to cover your checks. You will also be able to do a final walk-through of the premises before closing just to make sure the property is being delivered in the agreed upon the condition and that there are no unpleasant surprises. Do not fail to do this. You would be surprised at what some people consider "broom clean condition." At closing, you will receive the deed and the keys to your new home.

Following these suggestions, I've outlined above for the first time homeowner will save you time and money and lots of heartaches. It pays to take the time to think through your wants and needs and to prepare both emotionally and financially.