Shopping for your first home can be one of the most stressful transactions of your life.
Not only do you have to find someplace you want to live-more than a roof over your head, a home with light, space, and comfort-you also have to master (and negotiate with) an entire network of agents, brokers, lawyers, and movers. There are agents to spar with, inch-thick contracts to sign, movers to find, boxes to pack, and plenty of people to pay before you spend a single night in your new bed. Renting seems simple by comparison.
Before any of this, however, comes a simpler test: Can you afford to purchase a home? Or are you better off renting? The recession and falling housing market have made home prices more affordable to more people. Interest rates are at record lows. Those with good credit can get excellent mortgages. Despite the grim news about joblessness, for many this is the best time to buy. And thanks to Congress's recent extension of the federal housing tax credit
for first-time homebuyers -- $8,000 for qualified buyers - more people than ever, from a wider cross-section of the economy, can enter the market.
But no matter how the rules are changing, buying your first home is still a stressful, personal decision. A mortgage is likely to be the biggest investment you will ever make in your life-and unlike a rental agreement, you can't just leave after 30 days if you don't like your new home.
Here is a gallery of tips to help you decide if now is the time to buy your first home, and how to do it:
1. Find out how much you can afford.
The cost of a home is much more than a monthly mortgage bill. There are also property taxes, maintenance, utilities, insurance and possibly homeowner association dues. If you can add all of those up and set that amount aside for a few months, and still pay the mortgage, then you can afford a home.
2. Estimate how long you will remain in the home.
There are many costs to buying a home and you'll want to stay in a house as long as possible for the savings from renting to make up the difference. The costs -- such as a real estate agent's fee, closing costs, inspection fees and loan fees -- can add up to 10% of the sale price, or approximately 18 months of rent. Spreading that over 10 years or so is much better than leaving a house after a few years. 3. Compare the pros and cons of renting.
This sounds like an easy step you could do on a piece of paper with a calculator. You probably could if you're good at math, but take the easy way out and let a loan calculator
do it for you. Just plug in the numbers -- home purchase price, loan amount, length of loan, interest rate, property tax and other costs -- and you'll quickly find out if it's cheaper to rent or buy.
4. Take advantage of the first-time homebuyers' tax credit.
The $8,000 credit is some incentive to buy a home, although you must meet certain qualifications. While some members of Congress were skeptical that the program, which was to expire in November but has been extended, wasn't an incentive for first-time buyers, the real estate industry differs. It estimates that 350,000 of the 1.4 million first-time buyers who qualified for the credit through August would not have bought their homes otherwise, according to a WalletPop
There are some rules
about the credit, including that it can only be used on homes that cost $800,000 or less, not be used on vacation homes, and that the buyers' income can't be higher than $125,000 for an individual for $225,000 for buyers filing jointly. 5. Know the market
. Research the homes you want to buy through AOL Real Estate
(RentedSpaces' parent site), Zillow
or any other real estate sites you trust to find out what the median price of a home is in the neighborhood you're interested in. It will save you a lot of time and give you more power to negotiate. 6. Get a loan.
Mortgage brokers can give you a slightly better deal on a loan than banks often can, usually because they deal with many lenders. However, mortgage bankers can often move a loan application through faster. However you do it, shop around for the best loan rate and terms. 7. Go home shopping.
Now begins the fun of looking at homes and deciding what amenities you want. Find a real estate agent to represent you, or if you're brave and want to do it on your own, go out and shop on your own. Either way, it's going to be a memorable experience you won't forget. Aaron Crowe is a freelance journalist in the San Francisco Bay Area who can be reached at www.AaronCrowe.net