Buying your first home - Assignment Example

Buying your First Home Guide for First Time Home Buyers Your Semester, Professor Date TABLE OF CONTENTS Title Page i Table of Contents ii I. INTRODUCTION 1 A Why Guide to First Time Home Purchases is Worthwhile 1 B. Goals For Carrying Out The Project 1 II. RESEARCH METHODOLOGIES 2 III. RESEARCH FINDINGS 2 A. Literature Review 2 B. Findings from other Research Methodologies 6 IV. ANALYSIS 7 V. GENERALIZATIONS 8 VI. CONCLUSIONS 10 Works Cited 11 I. INTRODUCTION A Why "Guide to First Time Home Purchases" is Worthwhile Buying your very first home may be intense but worthwhile. Though you may consider it an investment, you may decide, however, if it would be a lifestyle investment or a financial investment. Whatever it is, homeownership is a worthwhile venture. First time home buyers need to consider many things before finally buying. These things are embodied in a handbook: Guide to First Time Home Purchases. A comprehensive guide consisting of step-by step instructions and recommendations, you cannot help but take note and appreciate its contents. For instance, you will find reminders such as setting your goals in order to have a focus on your single project - your home; controlling your debts so that there will be no problem during the payments of monthly amortization; working your money so you have to withdraw your savings from a low-interest bank and deposit in a high interest yielding bank for fast growth; checking your credit rating for a good credit history; doing your homework by comparing interest rates of lending companies, if you opt to make a home loan; and last but not the least, getting your entitlements which means that in some countries, there are bonuses for first time home buyer through a loan. These features make the 'Guide to First Time Home Purchases' worthwhile. B. Goals in Carrying Out The Project The competence statement, "Can understand the broader context of first time home purchases" is a moving statement that inspires first time home buyers to carry out the project. It means further that understanding the broader context of first time purchases is understanding the different steps to follow, particularly the first recommendation of setting a goal to carry the project. Goal setting means aiming for something. When you aim for something, it includes affordability. Affordability does not only refer to budget related conditions, it could also be related to strength. If you are healthy and strong, you can afford to work continuously and earn income. For budget conditions, affordability can work for you "keep in mind that any existing or current debt will reduce the amount that you can loan for your home" (Money Magazine, 2006). To carry the project, ask yourself if you can afford to spend that much and if not, you should be willing to live in a house which is cheaper and within your personal budget. II. RESEARCH METHODOLOGIES For this research work, the researcher used the descriptive method to gather data about the present conditions and to interpret these data through contrast, comparison, and relationships. A questionnaire which is designed by the researcher was utilized as an instrument to collect some data relevant to the research. Informal interviews with home buyers during the distribution and retrieval of the questionnaires were conducted. Printed books and internet articles related to the study were also read. III. RESEARCH FINDINGS Related literature and studies for this particular study were reviewed. The review provided necessary information in formulating the method and procedure used in undertaking the research. A. Literature Review Sheller (2008) commented that in buying a house the buyer must know that housing rates may remain steady for a year, goes up next year, and higher next year; it never go down. It is different from stocks whose prices are not fixed - it could be high today and low tomorrow. Expressed in another way, he said that housing is a tool of economic management. For some people who consider buying a house as an investment, the cost of monthly mortgage is counted as savings. For them, this little sacrifice will give them a different reward that their families will enjoy for the rest of their lives. A key advantage of housing is that it is a predominantly domestic sector and as such, is protected from external influences. It can thus be used to achieve short and long-term economic objectives regardless of external stocks. The poor housing conditions in most developing and transition countries is the first starting point of the analysis of the relationships between housing and economic development. Housing is a critical component of economics. It is not just a peripheral activity but a central force of sound economic development, much in the same way as investments in other sectors, Sheller added. Sachs (2008) asserted that the poorest part of the town could not be the damping ground of toxic wastes without jeopardizing the rich neighborhood as well. This is so, he said, because industrial pollution in one region could be carried by winds, rains and rivers, and so on. From the point of view of a housing policy, the main problem of the private rental market is that, because of the high cost of land and construction, low income households generally cannot afford socially acceptable new housing. They have to rely on older units, which must significantly depreciate before they become affordable. Equity problematic is that the supply of low cost rentals depends on the demand by those who can afford new housing. Elgar, (2001) revealed that the Ministry of Housing has been concerned mostly with the provision of housing solutions to specific target groups. While housing programs were in the past offered only to new immigrants, they are now available to a wider range of households in need: the poor, single parent families, the elderly, and the homeless. He said that various forms of renting are considered only if ownership is not affordable or unsuitable. Most of the owner-occupied units are located in multifamily buildings. Differences in housing quality between owner-occupied and renters are thus, not the result of the building type but of differences of the maintenance quality or the initial standard of amenities, materials and finish. Gros and Steinherr (1995) noted that the redistribution effect of an unavoidable increase in rent give current occupants the opportunity of buying their homes at an income-related price. Once private ownership is secured, rents and house prices set by the market will ensure that construction can take off and owners will have an interest in renovating their home. Even low-salaried employees grab the opportunity of buying a house so that increase in monthly rentals will not affect them. But because of low income, some of them take the risk of getting another loan in order to finance start-up expenses. These new loans, which also earn interests, add up to the original loan and give the real risk. The new homeowners miss out paying the mortgages and ends up reselling the property. They usually go back to renting and sometimes blame themselves for not making a good study or asking for some guidance before venturing on a housing project. Tibaijuka (2009) declared that housing investment contributes directly and indirectly through backward and forward linkages in the economy, to national economic growth and, to a large extent, to national capital stock. Housing as a sector is particularly recognized when it is rightly appreciated as a product and as a process. He described housing as a product which means not only the shell or standard of dwelling, but also their design and basic built-in equipment, the amount and location of space, and the cooling, heating, lighting, sanitary and similar facilities Millard Fuller (1976) cited the importance and beauty of a house. He said that a house can be pointed out as a property and can be sited as an address in a certain location. It is a place where the family lives and can call it their home; they can invite friends and relatives and can do any modification without asking permission from a landlord. As one homeowner of Habitat puts it out, "You don't have to have money to be happy and raise healthy kids, but you do need a safe, clean, dry home - a house kids can bring their friends to and not feel upset because of its condition - somewhere they feel safe. A home is a place where a family can put down roots." According an online article, home ownership is the realization of a couple's dream of putting down their roots. However, the article said that before you even conceive the idea of owning a home, there are many things that have to be considered. For a big family, owning a home is a wise idea than renting a small apartment where the kids cannot play. But this could only be true if you as the main buyer can afford the monthly mortgage. Anyway, after fifteen to twenty years of paying your monthly mortgage and you plan to resell the house, you are assured of a big investment. But you will start all over again. And if you are wise enough, the money you have may be used for your children's tuition fees or buy a small house and pay outright cash. Martinez (fivecentnickel.com) commented that when homeowners purchase a house, they are usually large and expensive. But homeowners do not only spend for the cost of monthly mortgages. They also pay realty taxes, home insurance, and association dues. These expenses are not incurred when one is only renting a place. Only the monthly rental will be paid - no taxes, insurance, and maintenance expenses are paid. She said further that careful planning and honest income analysis is important in deciding to buy your first home. If investing becomes impossible because of paying the mortgage consider to continue renting until your finances becomes stronger. B. Findings from the Research Methodologies From the reviewed literature, we can realize that owning a home is much better than renting one. Rented homes are located in places where they are near a commercial or industrial area where the target renters work. Sometimes, these places are polluted - raising children in these areas are not worthwhile. It was found out that as a first home buyer, we have to determine if we are just investing our money to let it grow; and if we are, what sort of investor Lifestyle investment requires the owners to be enjoying life under its roof while financial investment need not require the owners to be living in it. The house could be rented out to some interested clients while the owners live somewhere in a distant location. The Ministry of Housing in Israel helped specific type of families, such as the poor, single parents and the elderly. These families are given the option to own the house but if they still cannot afford they are required a monthly rental. The place is quite compact but the family should take it or they have to live the premises All the other reviewed literature, except an online article about homeownership, pointed to the fact that renting a home is just like you are working in order to earn money to pay the rent. And that no matter how long you stay in a rented house, as long as the contract is for annual leasehold, you will remain as a tenant for as long as you are faithfully paying the monthly rent. IV. ANALYSIS Theoretically there is no monetary distinction between buying a house and renting a house. In buying a house, the buyer pays the monthly mortgage and other inherent expenses. The house or apartment renter spent the same except that he will not own the house unless he buys it. Comparing the advantages and disadvantages of owning a home will help one decide whether to buy a house now or rent first then buy later. Though you may be thrilled to own a home, ask yourself if owning one will meet your needs that cannot be met in your rented home. Compute your monthly rentals and compare it with mortgage payments for a purchased house. In a period of ten years, your accumulated rentals could be enough to pay the down payment for a housing loan. The house will be yours for the rest of your life. Let us examine the table to compare expenses for rentals and monthly amortizations when your buy a house. Table 1. Comparison of Monthly Rentals And Monthly Mortgages Monthly Obligations Rented House Purchased House Mortgage, Insurance, Taxes January 2,000 4,150 February 2,000 4,150 March 2,000 4,150 April 2,000 4,150 May 2,000 4,150 June 2,000 4,150 July (after 6 months, monthly rents increase by at least 10%) 2,200 4,150 In buying a house, the monthly mortgage is equally divided up to a certain period when the contract price is fully paid. Once the house is fully paid, the buyer will no longer be paying for an amortization except the insurance, which is optional, and the realty tax. When you choose to rent, the monthly rentals increase by at least 10 percent after six months or after a year. The tenant has to abide with the condition, or he will be asked to look for another house to be rented. He will never become the owner of the rented house; the rental that he had been paying monthly will not have any effect on his aim of owning a home. One advantage, however, of renting a house is that the tenant avoids the problem of fixing major repairs in the rented house. Minor repairs are usually charged to the tenant. The tenant is not free to introduce any alteration in the rented house without the consent of the landlord or the house owner. On the other hand, a homeowner is free to do any alteration in his own home and he enjoys it. Buying a home gives the buyer the freedom to choose the location. The best location will be accessibility to schools, markets and public transportation, and the type of neighborhood. Good location demands high prices. Depending on your budget you can choose the location and the size of the house that you can buy. If your budget is not yet enough to pay the down payment and all the related cost of construction, maybe you can postpone owning a home and wait until you are prepared. V. GENERALIZATIONS Buying your first home can be an excellent monetary savings. Your monthly mortgage payments may be converted to cash in the future if you decide to resell your home. This kind of savings is superior than real estate investment because home mortgage is equal until the final payment or until such time when there is an agreement that after some years, the rate will change to another set where there is again another equal monthly mortgage payment. If after a careful analysis of your income and honest comparison of the advantages and disadvantages that the project may bring you are decided to push it through, then start to compute how much you spend a month in order to leave the mortgage payment intact, then some other questions need to be honestly answered. First, ask yourself how much payment you can allocate regularly. Compute all your monthly expenses against your income. A joint monthly income is advisable. Your monthly amortization should not be more than 28 percent of your monthly joint income according to Buying your First Home 2010, an article on housing. Also consider the cost of the house that you want to own. Some buyers forgot to consider the monthly income they receive because of the special features presented by their dream house. Cash requirement is not limited to the down payment required by the real estate property. Other cost requirement includes inspection cost, cost of application, fee for the appraiser, surveyor's fee, title investigation and insurance fees, and attorney's fees. Make sure you understand all these charges and you are willing to pay them. Choosing the neighborhood is another importance that first time home buyers should consider. Houses and lots appreciate quickly if it is within an exclusive neighborhood. If you are buying a home for investment, the neighborhood pays a very important consideration. Your house can be sold immediately should you decide to resell it. For most people buying a home will bring them wealth or that if they rent they are throwing away some money. The result is they buy a big house which they can't afford to pay in the future. Because of imagined financial benefits these people get buried in debts left and right. The best thing that one can do is not to trick him into thinking that buying a house is a good financial decision, if it is not. In buying a house, buy one because you want a nice permanent place to live where you are the boss, not because the house will help you get rich. VI. CONCLUSIONS Buying your first home is not like buying a pair of shoes. When you find one, consider that it is not available anywhere else. Buying a home requires careful analysis of your income and expenses and the advantages and disadvantages of owning one. Deciding to buy a home is a huge project which necessitates budget to realize that goal. While working on that goal there is a need to control your debt. Your budget needs to get into shape. If you have got more time to invest, consider a managed fund. Maximize your savings. Some renters wanted to have the same status as their former neighbor. So if the former neighbor buys a house, this renter will also do the same even if he is not ready for such an expense. Though renters have more financial alternatives than proprietors, the question would be who has more benefits in the long run Not all situations are the same; everyone is different - for some, the best strategy is renting and for others, buying a house is smarter. The key is determining which is best for you and your lifestyle. There is nothing quite like owning your own home -- getting to know your neighbors, decorating your home and creating a place that you can call your own. Analyzing your capacity as a buyer and other relevant information to gather are the first few steps towards home ownership. This makes the handbook, "Guide to First Time Home Purchases", very helpful. Works Cited Buying Your First Home, How-to Guides: Your Step-by-Step Online Resource, Last Revision, April 18, 2010. http://finance.yahoo.com/how-to-guide/real-estate/12819 (Accessed May 5, 2010). Buying Your First Home. Money Magazine. money.ninemsn.com.au/article.aspx ninemsn Money Property. Accessed May 5, 2010 Elgar, E. Public Investment and Regional Economic Development. Public versus PrivateRented Housing in Israel: Public Policy and Tenants' Choice. UK: Edward Elgar Publishing Limited. 2001 Fuller, M. More Than Just Houses. Nashville: Word Publishing. 1976. Gros, D. and Alfred Steinherr. Winds of Change - Economic Transition in Central and Eastern Europe. England: Longman Group UK Ltd. 1995. Knox, N. USA TODAY- ABC News youngdebt.usatoday.com. Updated 12/22/2006 (Accessed on May 5, 2010) Martinez, L. Buy vs. Rent: The Real Estate Dilemma. fivecentnickel.com July 21, 2009. fivecentnickel.com/2009/07/21/buy-vs-rent-the-real-estate...(Accessed May 11, 2010). Sachs, Jeffrey D. Common Wealth: Economies for a Crowded Planet - Common Challenges, Common Wealth. New York: The Penguin Press. 2008. Sheller, Robert J. The Sub-prime Solution, New Jersey: Princeton University Press, 2008. Tibaijuka, Anne Kajumalo. Building Prosperity - The Centrality of Housing in Economic Development. UK: Earthsan Publisher, 2009. Weintraub, E. Before You Buy Your First Home - Tips for a First-time HomeBuyer About.com Guide. homebuying.about.com/.../buyingahome/.../shopping1sttime.htm Accessed on May 5, 2010 Read More