Ah, the American Dream. Life, liberty, the pursuit of happiness, and the hope of one day becoming a land-owning baron who answers to no one and spends his weekends de-clogging gutters and searching for things to break and then fix again. Despite the current foreclosure rate, home ownership is something to which most people still aspire, both for the obvious benefits (equity – whatever that means – and the promise of wooing women for whom the correct answer to ‘rent or own?’ is the magic open-sesame), and because we have grown up to understand that buying a home grants automatic entry into a club of people who succeed in life. We want to be in this club, and 20% down is the price of admission.
If you’re tired of renting your slice of Manifest Destiny, then it might in fact be time to consider buying a place, no matter how daunting and grown-up that might sound. While home ownership used to be the territory of the tied-down married fellow with a 9-5 job and 2.5 kids, the construction boom of the early-21st century produced quite a few pimped-out apartment buildings in cities all across our fair country, buildings that now sit vacantly and patiently waiting for you to take up residence and put a little more swagger in your bachelor strut.
Step 1: Decide if buying is right for you.
Before you head to your neighborhood mortgage broker to demand the lowest possible interest rate, take a moment to decide if buying is right for you. Yes, it’s a good investment (even if the housing market takes a few years to bounce back, your mortgage interest is still tax-deductible), but it’s also kind of like shopping at Costco; it’s only a good deal if (1) you really need it, and (2) you’re planning on using it for a while. Buying property on the cheap in an “up-and-coming” neighborhood you’d normally never want to live in is a poor choice because the value is going to take years to appreciate, meaning you’re stuck in a less-than-desirable hood for a long time with no chance to recoup your investment. If, however, you have a chunk of cash stashed away and can see yourself living somewhere for 3-5 years, then this is absolutely the time to look into what you can afford to buy; not only will your mortgage payments be equal to or less than what you might pay in rent, but you’ll essentially be paying yourself versus paying crazies who steal your security deposit and have too many cats.
Step 2: Figure out what you can afford.
The best way to determine how much home you can buy is to see a mortgage broker before you look at your first property. Hammering out the nitty-gritty financing details early ensures that you won’t waste your (or a realtor’s) time looking at places you’ll never be able to own. The idea is to end up with pre-approval letter – being ‘prequalified’ means nothing, and you’ll probably be over-quoted and receive a hard dose of reality when you actually go to apply for a mortgage – but make sure to shop around in order to get the best possible quote. You can also make like your parents and check the Better Business Bureau to see which lenders are the most reputable –especially important given the current, sad state of real estate affairs.
Things to keep in mind: you should be prepared to put down at least 20% of the total cost up front, but you can maximize your buying power with current incentives. The federal housing tax credit, for example – which, as you’ll see from the website, is clearly the choice of ethnically-diverse nuclear families everywhere – provides a tax credit equal to 10% of the total purchase price (up to $8,000, which means you’ll get $8,000 if you’re buying anywhere besides Detroit or Oklahoma) for first-time home buyers (defined as individuals who haven’t owned a principal residence during the three years preceding their new home purchase) The catch, if you want to call it that, is that you have to make under $75,000 a year (for couples it’s $150,000), but luckily this is the Awesome Depression, so that might not be an issue anymore. The other caveat is that you must buy by December 31, 2009, so if you’re going all in, you’d best get while the going is, as they say, decently lucrative.
Step 3: Make a list of deal breakers and deal makers.
Your apartment search will be infinitely more successful if you take a few minutes to make a list of what you can’t live without (and can’t live with). Whether preferred neighborhoods or necessary building amenities, you need to give your realtor an idea of what you absolutely must have and what you’d be willing to give up if the price were right. By dividing the list into “deal breakers” (i.e., you won’t live farther than 30 feet from your watering hole of choice) and “deal makers” (as in, you’d be willing to fork over a little extra for a balcony or updated appliances), you can prepare yourself to recognize a great deal and make an offer instead of agonizing for days and losing out on something you really want.
Step 4: Find a real estate agent.
Having an agent who will really work for you makes all the difference when looking for your perfect future home. Instead of relying on bus advertisements or freeway billboards, talk to friends and family and get some word-of-mouth recommendations for the most reliable results. Once you’ve settled on The One, ask to receive automatic email updates when a condo meeting your requirements comes on the market. Your realtor can also preview properties for you, leaving you free to catch up on important work.
Step 5: Pay attention to the fine print.
When you’ve found a place you love, don’t forget to find out what you’ll be responsible for when you actually live there by pricing out assessments (an amount paid by all owners to cover a portion of the common building fees like energy for common areas, snow removal, trash collection, and legal fees) and asking for copies of the building’s budget, by-laws, and rules (or declaration). You should also get a copy of condo board meeting minutes from the last two years, which will alert you to any potential problems the building might be having.
Step 6: Make an offer.
After you’ve considered all of the above information, but before you make an offer, ask your agent to find out the sales prices of comparable properties in the area over the past six months. In order to determine how you should reasonably offer, it’s also good to find out the average percentage under the original asking price that homes in the area, regardless of whether they’re comparable or not, have sold for in the past three months. Typically, you should offer no less than 85% of the asking price, but given the veritable real estate fire sale happening in the U.S. right now, you might be able to get away with offering something even lower if you come in armed with some statistical info.
Step 7: Throw a kickass housewarming party.
Maybe make it a theme party. Owning a home is a big life step – better make sure your friends don’t think you’re too mature.