Oh, give me a HOME...

November 10, 2017

Not long ago, owning a home was considered an integral part of the American Dream, a dream that included backyard cookouts, birthday and holiday parties, and Halloween adventures.

When my husband, 1-year-old daughter, and I relocated from Los Angeles to Maryland in 2007, we searched for the perfect place for our growing family. At that time, realtors told us buyers were making decisions in a day or two, and I thought, “Good for them.” Our experience wasn't even close, although we did eventually find something that suited us just fine in Reisterstown.

This year we moved north 13 miles to Hampstead, MD in search of smaller public schools for Middle and High School educations.

Like many families, our priorities included schools, commute times, access to neighbors, proximity to religious services, and miscellaneous criteria like a nearby store where we could get an emergency gallon of milk on the way home or first thing in the morning.

Before continuing this discussion, allow me to clarify: I think of a “house” as an insured structure; a family is what makes up a “home.” That's true whether you're talking about an apartment, house, or condo. I have lived in nine states, beginning with my parents and siblings in Massachusetts, followed by friends with whom I became roommates, and now my husband and two kids. Those people (and the various pets that went with them) are all “home” to me!

Yet, when it comes to actually buying a house, there is so much to consider. Where do you start?

First, financing: check your credit score, clear up any discrepancies, and talk with a lender to get prequalified for what you can afford before you work with a realtor. That “qualification letter” will outline your financial picture to make a complicated process smoother.

Next, how long do you think you will stay? Are you on a job assignment (military or contractual work) that is short term? In today's market (as has been the case for the past five years or so, and may continue for the next few), the expenses of a down payment, taxes, upkeep, and repairs may not be the most cost-effective way to generate a return on your investment at sale. You may be better off renting, letting the landlord pick up the tab while you save or invest the difference!

If you do choose to buy, however, my best advice would be to keep your expectations in check. Although you may qualify for a certain amount (say, $400,000), I would suggest keeping your eye on homes about 75 percent of that figure, allowing for wiggle room in your budget in the event, say, that you move in and discover something needs repair.

In my family's case, our utility expenses were dramatically higher in Maryland than in California. Throw in the new fence, furnace, and furnishings, accompanied by the birth of our son, and it turned out to be very wise that we stayed under budget in purchasing our house.

How much would you like to put towards a down payment? If you put less than 20 percent down, you will have to pay property mortgage insurance, or PMI, an insurance policy the lender requires in the chance that you default on the loan. PMI was, once upon a time, a deductible expense, but that is no longer the case. (Talk to your accountant for further tax advice.)

What kind of rate is best, fixed or adjustable? It all depends on how long you plan to stay in the property. While each individual situation will vary, in general, the longer you plan to stay, the more a fixed mortgage makes sense for setting a budget. Although the interest and principal payment will be fixed, your homeowner insurance and property taxes will fluctuate each year.

If you plan to sell or refinance prior to the adjustment, a variable rate will afford you lower payments initially; however, when rates go up, your payment will follow. For a starter home, this may be a great option, so long as you refinance to a fixed rate down the road.

After you have found the home you want and put the financing in motion, the last, but in my opinion, most important step is to pay for the mold and pest inspections, HVAC, plumbing, and wiring inspections, in addition to the home inspection required by the lender.

Many attractively priced homes on the market have been vacant and may not be well maintained if the property was repossessed by the bank. In those cases, inspections could uncover a deal breaker, such as bats, termites, or rodents. If that happens, either run, or factor the cost of fixing the problem (with a decent cushion) into the price of the house, dramatically reducing it! BC

Annie Morrison is an independent advisor representative with and securities and advisory services offered through Commonwealth Financial Network, a Registered Investment Advisor, Member FINRA/SIPC. Zuma Financial Advisors is located in Reisterstown, MD. Email her, at annie@zumafinancial.com, or call (443) 468-3280.

The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.