Before buying a home, it it important to decide how long you plan to live there.  A rule of thumb is that it rarely makes sense to buy if you expect to move within two years. That’s because when you do sell, there are costs associated with selling.  Buying a home when you expect to move before too long is a risk, especially in an uncertain market.

However, most buyers live in their new home an average of seven years or more. If that fits you, it almost always makes sense to buy rather than rent, in practically any market.

If you are thinking about delaying a purchase because you want to “time the market” to get the very best deal, that is almost impossible to do with precision. Even if you are in an area with declining market prices, the most knowledgeable experts cannot reliably anticipate the “bottom” of a real estate market. Afterwards, they can look back and say, “The market began to turn in 1997,” like it did in some areas of California that had a tough market in the nineties. Before the turn, though, no one knows.

If you aren’t an owner, you’re a renter. Renting is just throwing money away. You don’t get to reduce your income taxes by itemizing deductions like property taxes  and mortgage interest. 

Interest rates are low right now. If you wait, interest rates could be higher. That means your monthly payment will be higher, too. No one can predict rates that far in the future but rates are very low right now.

The easiest way to accumulate wealth is through home ownership. Three out of four people have more equity in their home than assets in retirement plans, stocks, mutual funds, and savings. Though no one can guarantee your property will appreciate, over time it generally does. Over the long term, you can generally count on it.

As a buyer, what do you need to do to give you the best bang for your buck?  First of all, determine your price range. Then choose a neighborhood where your target price is in the lower tier of prices in that neighborhood. That way, your home has less vulnerability on the down side and the higher-priced homes will help pull you up during hot markets.

Also, try to steer away from homes on busy streets or homes that back to busy streets. Buy a house as close to the center of the tract as possible. Don’t buy houses across the street from a park or a school. Try to buy in a homogeneous area, where all the homes are similar to one another. For example, if you are buying a single family home, you do not want to buy next to an apartment or condominium complex.

And remember, talk to a real estate agent and ask for advice. Ask them what the market is like in your area.

There are LOTS of sellers out there right now. Inventory is high. If you make an offer, ask for incentives to buy that particular home.

If you are putting ten percent down or more, you can ask for up to six percent of the purchase price in incentives. These incentives CANNOT BE CASH, but you can ask the seller to pay your closing costs. You can also take advantage of programs such as the Nehemiah Program that allows sellers to contribute 6% of the purchase price which includes your 3% down payment and 3% towards closing costs.  This program works if you qualify and are looking to get an FHA loan.

If you’re putting down five percent or less, you can still ask for incentives. The amount you can ask for is limited to three percent of the purchase price. The reason there are limits is because you are going to finance the purchase with a mortgage and lenders have guidelines on how much sellers can provide in incentives. Those guidelines help them limit loan fraud.

Talk to a real estate agent. Have that agent recommend a lender who will talk to you about incentives and explain what you can request.

This is a question many people do not know the answer to and one that, I think, is important for people to understand as part of the home finance process.

Loan officers, for the most part, are 100% commission employees.  In other words, they do not have a regular salary and therefore, the loan that they get from you and their other clients, is directly paying their bills.  Is that scary?  It doesn’t have to be.  Here is how it goes….

When a borrower goes to see Jo Loan Officer for a mortgage, Joe first will assess your ability to get one.  He spends time and, hopefully, expertise to get you the best deal he can.  That ability comes from knowing what lenders are “buying the market” or, in other words, have the lowest rate at that time.  One major advantage a brokerage has over your major banks is that the broker can check many different banks to try and find that ‘best rate’.  At that point Jo will take into account your needs and your desires and try to make the two ends meet in such a way that benefits you the most. 

During that process, while Jo is working on the details of your loan and shopping with different lenders he always checks how much each lender is paying for the specific rate he is looking for.  You see, lenders actually pay the loan officer/brokerage depending on what interest rate they lock in for their client.  If Jo charges you a higher rate, he gets paid more by the bank.  The lower the rate, the less the commisson or “yield spread”.  The process is very much a straight line, Jo has a responsibility to try and get the lowest rate while still making the commission that he needs to make to do the loan.

A fair goal on most loans in my opinion is 2 percentage points.  That means that if your mortgage is $200,000, then Jo, if he is a good guy, will probably gross around $4000.00.  That can be more or less depending on the type of loan etc.  Out of that money, Jo will most likely have to pay his brokerage and processor as well and the amount he has to pay for that varies with each brokerage.  Many times, it can equal roughly 1/2 a percent, so $1000.  Then he will obviously pay taxes which lessens that.  The other wild card in this is if Jo chooses to charge and “Origination Point” or a “Discount Point”.  In that case he would charge that point or points equal to percentage points up front in your closing costs.  This can be more than fair depending on the situation or it can be simply a way for dishonest loan officers to make more money. 

One reason Jo might charge these fees is to help keep your rate even lower and since the bank or banks aren’t paying enough for the lower rate, he must charge it up front.  So, if Mr. Smith wants a loan at 6% and the bank is only paying 1 point of yield spread, then Jo may charge 1 point “up front” to make his commission and still give Mr. Smith the rate he is looking for.  If however, the bank is paying 2.5 in yield spread and Jo is charging 2 points on the front, it starts to become questionable.

Some may think that 2 percentage point in commission is too much to pay the loan officer.  Well, for some loan officers who just hang out their shingle to make an easy buck, that would be a fair assessment.  But for the seasoned loan officer who has a career in this business and works hard and is honest, 2 points is more than fair.  What you are paying for is the expertise and service and time that does not come free.  Most people would not go see a doctor that was sub-standard just because he was cheaper.  Most would rather pay for the doctor that have the best standard of care possible.  The same is true with loan officers.  Doctors deal with physical health, loan officers are part of the picture that deals with financial health.  The assembly line lenders and part time ‘loan officers’, many times, do not have the experience or understanding to help the most with one of the most important financial decisions people make.