The present real estate market has presented two distinct challenges to new and potential homeowners across the country, and particularly in New York. The first challenge is actually saving up the money to buy a home, especially with the credit crunch still in process and the amount of down payments going up over the past several years. The second thing is actually being able to pay for that home over the long-term, avoiding the fate of so many foreclosed homeowners over the past several years. Luckily, that period of "the past several years" has taught many aspiring homeowners what to do, and what not to do, when buying and financing a home. Here's what everyone should know.
Before Buying: Get Comfortable with the Idea of a Debt This Large
Mortgages are not a small endeavor, especially when looking at Manhattan real estate, which counts itself as some of the most expensive in North America. Before committing to the purchase, it's important to know that it will be possible to make good on monthly payments and avoid the worst-case scenario. That means looking into the real affordability of a home as it affects future plans (pets, children, and even vacations). It means evaluating current financial realities and future financial prospects. And it means really looking at the value of a home and understanding it, in order to get comfortable with the decision and enjoy it once the sale has closed.
After Buying the Home: How to Stay Afloat and On Track
Getting used to the idea of taking on a mortgage is the first step in a two-part battle. After the deal has closed, homeowners will need to make sure that their payments are on time, their overall finances are secure and stable, and their expenses are minimal oner the longer-term.
In a fantastic radio interview on June 2nd’s Eye On Real Estate featuring Dottie Herman (Prudential Douglas Elliman), Dottie interviewed renown personal finance author Eric Tyson in “10 Things To Do After You Buy Your Home.” Within, she went over a laundry list of items that every homeowner should address immediately purchasing a home.
1. Prep for a Rainy Day
In terms of finances, a rainy day is generally code for unemployment, injury, or an unexpected expense. While the average homeowner should have no less than three months of expenses set aside for such an event, it might be worthwhile to consider storing six or even eights months of living expenses in a high-yield account just in case. This economy is unforgiving, and more money for a rainy day is never a bad thing.
2. Skip the Mortgage Insurance
Even though it's strongly marketed to new homeowners, mortgage insurance is actually a worse overall investment than a classic life insurance policy. And, because most people already have these life insurance policies, it eliminates a significant monthly expense that has a typically low rate of return.
3. Go Electronic for Mortgage Payments
There's always some apprehension when it comes to selecting electronic payments (also known as automatic debit) for any kind of recurring expense. However, it's the best way to avoid late payment penalties and maintain a healthy credit rating, and it's one less thing to worry about at the end of every month.
4. Pay Attention to Local Taxes
Much of the cost of a home can be found in local tax assessments, which are based on a home's value. As much as government official would like it to, that value doesn't just go up on an annual basis every year. Sometimes it goes up, and other times it goes down, and it's worth comparing the government's assessment of a home's value to a self-requested assessment. The disparity could result in a significant tax savings.
5. Go with Financial Planners and Real Estate Teams
Consumers like to think they know it all, and do it all, when it comes to buying and paying for a home. The harsh reality, however, is that they really can't Professionals are there for a reason, and they can develop sound financial planning and take a measured approach to real estate that works out far better in the end.
6. Watch Out for Solicitations
Homeowners are prime targets for all kinds of insurance products and financial tools, and banks will make sure to send several offers a week to some consumers. Ignore them. They're not all as great a deal as they claim to be, and the services of a financial planner will make this clear.
Those who have real estate older than a few years will want to consider the pros and cons of refinancing. Interest rates are at historic lows, making it financially beneficial in many cases. However, the costs of the process should be evaluated in the long-term interest rate savings when deciding whether refinancing makes good financial sense.
8. Save Receipts
If you’re living in an area with ever changing tax rates (Manhattan real estate), you should always save your homeowners documents.
9. Relax, Enjoy, and Take Some Personal Time
While a home is a big financial decision, and it requires a lot of financial care and maintenance over the long term, homeowners should still take time to step back and enjoy the comfort of their Manhattan real estate from time to time. It's possible to burn out and simply get exasperated by the process if a little self-preservation isn't enjoyed every now and then.
10. Great Ways to Own a Home in Any Kind of Market
Following the eight tips above is a great way to enjoy a home no matter what the real estate market does in the future. Sound financial planning, a great emergency fund, and a commitment to on-time mortgage payments are all that have ever been required of homeowners to make things work out. Add in a little relaxation, and everything is likely to be just fine from now until the last mortgage the lender electronically debits payment.