Are You Ready to be a Homeowner? Part 1
Do you think you’re ready to be a homeowner? Honestly, think about it… Close your eyes and picture your home in your mind… Do you see yourself painting a child’s bedroom or perhaps that man cave you’ve been wanting for years complete with bar and pool table? Maybe it’s a green lawn and a picket fence or a photography studio in the bonus room. Now let me ask you something. Did your credit score come to mind? How about new monthly expenses, your income to debt ratio, or risk of default? It may not be as pleasant to think about these kinds of details but they are, in the end, things you must consider to prepare yourself for the dream of owning your first home.
So, what does it really mean to be ready to buy a home? Let’s take a look and consider homeownership. We’ll examine the benefits and possible drawbacks of each. But hopefully, afterward, you will have a better understanding and more realistic expectations to make your homeownership dreams a reality.
Let’s start on a positive note and look at all you have to look forward to as a new homeowner.
1. No more rent
You are the landlord now, and the first thing you are going to do is put a permanent freeze on rent! (insert rent is too damn high link GIF). A conventional mortgage has a payment that doesn’t change. And, as a bonus with a VA Loan, you can receive lower interest rates which will only drive down the monthly payment amount of your home.
Your home, like so many in the United States, will likely see an increase in value over time. This means you can potentially have positive equity in your home which means that it’s worth more than what you purchased it for. You can take advantage of this equity in several ways, such as, selling your home and making a profit or using the equity to refinance or as collateral on a loan to start a business or even purchase a car.
3. Your home is a canvas and you are the painter
Paint the walls, add wainscoting, go solar, add rooms, and more. You don’t need a landlord’s approval (like they ever approve anything but rent hikes) to make a change to your property because, well, it’s YOUR property! You are finally free to truly build your own space and transform drywall, wood, and carpet into a place you enjoy every day.
4. Income opportunities
Remember that part about being the landlord when you own a home? Well that wasn’t just for a laugh. You really are the landlord if you choose to be. There are some requirements to consider, but, if you qualify, you can rent out your home as an income property. This is a potentially great option if you live in a college town where multiple tenants are paying you. If done properly, renting your home can be a fantastic way to build personal wealth for you and your family.
5. Credit and Taxes
When you own a home and never miss a payment, your credit score can skyrocket, if it wasn’t already high. Banks and future lenders will look at your great mortgage payment history and be excited to have such a responsible client. And, with better credit, comes better interest rates, which means lower payments overall. Great credit is a great gift to give yourself and can save you many, many thousands of dollars over a lifetime. And, when April 15th comes around every year, you can expect to write off your home’s interest as a deduction, saving you some extra scratch from Uncle Sam.
1. New expenses
So now that you are a property owner, you have certain responsibilities. One, like your car, is annual taxes on the value of your property. Another, homeowner’s insurance, which are often significantly more costly than the equivalent insurance for a renter. Finally, if you have an ARM (adjustable rate mortgage), and if your rate increases, so too will your house payment.
So now that you’re the landlord, when your washer breaks, or the sink leaks, or your grass gets too high, you are responsible. Homeownership is great but it can be overwhelming if you are not prepared for the upkeep and maintenance of your home. A great resource is the home maintenance book by Black and Decker (LINK) which covers almost every common household repair.
When you rent, you are only tied to the term of the lease. Often this is a year, six months, or even month to month. You are often never more than a few months away from being able to consider a move, an upgrade, or downgrade to adjust with your lifestyle and income. With a home, relocation becomes more complicated. Often you must sell your home before you can purchase another, unless you have a large savings or line of credit. This means a potentially stressful tango between finding a buyer for your current home, which can take many months, and finding a new home which is often dependent on selling your old home. You may find a new home to buy but, while waiting for your home to sell, you could lose out on one you really love. Sadly, this does happen frequently, and the feeling of losing the house you wanted to purchase can take its toll on you and your family.
No one buys a home expecting to miss payments or lose their job while trying to pay a mortgage. But, life happens and sometimes it is not in your favor. Extended default, missing payments, or late payments, can ultimately lead to foreclosure where the lending bank retakes possession of your home and you no longer own it. This is the worst case scenario for any homeowner. One of the most stressful events in anyone’s life can be the financial burden of a home, especially when a change of financial situation occurs. But, it is a reality which must be considered and a risk to be assumed when you make the decision to buy a home. So make sure you are secure in your job and finances before a home purchase and buy well within your means.
2. Loss of equity
Sometimes home values don’t go up. Sometimes, like we all saw in 2008, home prices can drop, leaving you with a mortgage that is higher than the home value. This is an upside down mortgage and it is feared above all else, besides the dreaded default and foreclosure. It can take years for markets to recover and home prices to rebound and sometimes they never do. Selling a home at a loss or paying more than what it’s worth can be a monthly burden you wouldn’t have thought possible when you first purchased a home.
Though things can go wrong with buying a home, more often than not, they go right. And, if you take the time to consider the facts, risks, and realities you will be well prepared for anything that comes your way. So, if you’ve made it this far and still feel good about owning a house, great! You may be in good shape to consider making a home purchase. If you are feeling ready to learn more click here and start the process to find and purchase your first home today!
Bobby Atkisson is a seasoned mortgage professional who provides high quality financial services to military members and veterans. With over 14 years experience in the lending and financial industry, his mission is to provide high quality mortgage programs with the most competitive interest rates. For expert advice and guidance on VA Home Loans and Refinance, contact Bobby today at 800-537-2050.