Is Buying a Home Worth it?
Depends on what you value to answer this question for you. There is no one answer for this because every person’s situation is different. For some people, it does not make sense to buy. If you plan to stay in Tallahassee less than 3 years, then buying a home may not make sense. Although I have sold homes to students that end up renting their home after they leave the area, and they make enough passive income to pay their next rent, this is not always a good option. There is no one way to invest and you are never too young(or too old) to own Real Estate.
How is Buying a Home Better Than Renting?
Think about how much rent you are paying right now. In Tallahassee, there are few one bedroom one bath apartments that rent for less than $650 a month. Many of the nicest 2 bedroom apartments are close to $1,000 a month. If you are renting a home, you are probably going to be paying at least $1,500 a month and still paying utilities and mowing the grass. Think about how much money you are putting in your landlord’s hand every year. Somewhere between $8,000 and $18,000 a year mostly likely. How many years have you been renting? Let’s say you came to Tallahassee for school or work (like so many of us who end up here). In three years, you have given your landlord between $24,000 and $54,000 in rent payments. Ouch! I don’t know about you, but I cringed when I saw that amount.
If you owned the roof over your head, you would be building equity in your home. Equity is the difference between what you owe and what the house is worth. Historical, Real Estate (land and improvements) increase in value 3%year over year. In the past several years, some areas of Tallahassee are increasing in the double digits year after year.
There is also the peace of mind knowing that your monthly payment is never going to increase. There is freedom in knowing you can paint the walls whatever color you want or put in a catio in the backyard. There is also pride in owning the place where you rest your head. Not to mention, you can have more than one fur-baby if you want and have constitutionally protected privacy. Most mortgage payments are less than rentals right now too with the historically low interest rates. Owning your home also lowers your chances of being a victim and increases school grades and chances of graduation. Owning a home also positively impacts a family’s health.
There are downsides to owning – maintenance and taxes, probably the biggest headaches. Equity takes time to build. However, there are so many positive outcomes, that we believe the benefits outweigh the costs and that is why we love our jobs.
When Buying is a Good Investment?
Ask any Realtor and they will tell you that there is no bad time to invest in Real Estate. Sometimes the prices fall in the winter when there are fewer buyers looking. Sometimes there are great deals to be had in the last part of December as investors adjust their holdings for the end of year accounting. The biggest share of inventory seems to hit the market in April and May.
Interest rates are historically low, and that allows owners to purchase a larger house with a smaller payment. It is interesting to note that some of those interests rates for homes in the early 80s were over 17% – and people were still purchasing homes and investment properties.
What Part of Buying a Home is Tax Deductible?
Unfortunately, most of the expense of buying a home is not tax deductible. Check with your accountant, every situation is different of course. However, for most of us, the only deduction we may qualify for would be for the pre-paid mortgage interest we paid at the closing table.
Why is Buying Stressful?
Surveys often show that Americans feel that buying a home is an incredibly stressful event. It should not be that way. We feel that a lot of that stress can be avoided with the proper information. That is one of the reasons we like to meet with all the stake holders early in the process and talk about expectations and goals. It would be impossible to cover every important aspect of buying a home in a single half hour meeting, but we will cover the biggest aspects and the ones most important to you.
One of the reasons we created this website and have spent so much time writing for it is to provide a lot of that information for free. Even if you do not use us to buy and sell your next home, (and we really hope you do!!) we wanted you to be informed. We believe this education will help lower stress and anxiety and help buyers and sellers make their next move a little more smoothly. If you have a question that you have not found an answer for, email us! If we don’t know the answer we will track it down for you.
Is it Safe to Buy in Tallahassee?
Yes. If your idea of safe is being able to walk your neighborhood at night without fear, then there are many neighborhoods in Tallahassee that would meet that criteria. My favorite time to walk in the summer is after nightfall. We walked with our dogs after dark all the time when we lived in the Lakeshore area, and would often meet neighbors exercising their pups too.
If your idea of safe is earning a return on your investment over time, Tallahassee is still a strong investment. Due to our smaller size and the larger percentage of government and affiliated jobs, we were impacted later than the rest of Florida during the housing crash. We also saw a smaller drop in home prices when compared to the bigger metropolitan areas of the state like Jacksonville, Tampa and Miami.
Can Buying Hurt Your Credit?
Although buying a home can help your credit score over time, buyers often see a significant drop in their credit score after closing on their home. Some scores can even drop up to 40 points. The biggest impact on your score is your payments history.
Many first-time home buyers are not aware of their credit score and figure that since they make a decent income and have virtually no debt that they will be able to qualify for a mortgage. Unfortunately, unless you have a established a history of paying debt on time, you may not have a credit score. Or you may not have a score high enough to qualify for a mortgage. Most lenders want to see at least a 650 (out of 850) score.
For many Millennials and X-Geners, the ONLY reason to worry about your credit score is to qualify for a mortgage. For most, it is the largest debt they will encumber. Having a high score when you qualify helps you save a significant amount of money. It could save you several hundred on your monthly payment and tens of thousands during the lifetime of the mortgage. If you continue to make payments on time, your credit score will continue to rise as you own your home.
How do Student Loans Affect Buying a Home?
In three main ways:
- Saving takes longer. The student loan monthly payments may mean it takes longer to save for a down payment for a mortgage.
- Credit Score. Many things impact your credit score, including student loans, and late or missed payments will lower a credit score.
- Increases DTI. Your debt-to-income (DTI) ratio (or percentage) is calculated by adding up all the debt payments you must make in a month divided by your gross income (before taxes). Most lenders want to see you dedicating no more than 41% of your monthly income on debt service. Even if your loans are in deferment or forbearance, depending on the type of loan you are attempting to qualify for, the balance of debt may be calculated in that DTI ratio.
There are federal rules for lending that bankers must follow. In addition to those, individual banks will have additional rules, called overlays. Before you give up, talk to an experienced lender and have them guide you on which debt would have the best impact on your ability to qualify for a mortgage.
Can an Eviction on my Record Affect Buying a Home?
Yes. The impact it has will depend on how your landlord handles the debt. An eviction can show up on your credit score as a charge off and impact your score between 80 and 150 points. If rent payments are reported as past due, that will show up in your payment history. Your payments history is approximately 35% of your credit score. If the landlord goes to court to force you to pay your past due rent, you may also end up with a judgement against you. This will show up in background checks and is public record. HOWEVER, not all landlords know how to sell your debt or file court documents against you or they may not find the time and expense is worth the hassle to them. Best thing to do is to check your credit report regularly and contest any information that you find is not accurate.
Do Medical Bills Impact Buying?
Yes, medical bills can impact your credit score depending on how your health care provider handles the debt. If you are paying the debt, there is a good chance that your monthly payment on your medical bills will not be counted in your debt-to-income (DTI) ratio. However, if you stop paying many medical associations will not send the debt to collections right away. You may have up to six months before it is sold to a collection’s agency, depending on the health care provider. Even after your bill goes to collection, the main credit score companies give you up to 180 days to dispute the charge or settle it before it impacts your score. Medical bills are treated differently than other debts because even if a person has health insurance it may take that insurance company months to pay what they owe to your medical provider.
Can You Represent Yourself When Buying a Home?
Sure, but why would you want to? Most of the time in Tallahassee, the buyer’s agent is paid by the listing agent’s broker. Essentially, the seller is paying your agent to help guide your through this process. When professionals are involved, the chances of getting to the closing table are much higher. In some areas, buyers are expected to compensate their own agent. That percentage can be negotiated and is usually between 2.5% to 3% of the purchase price.
If you represent yourself, find a way to access the information you need to make informed decisions. By design, some information is privy only to those who are members of the Realtor trade association. That information can impact your bottom line. For example, there are locations in Tallahassee where it is standard practice for the seller to provide a significant remodeling concession. This is not information that a typical buyer would have access to, it is not information the seller’s agent is required to provide, and the lack of this knowledge may lead the buyer to leaving thousands of dollars on the negotiating table. Also, seasoned Realtors have more experience to offer alternatives during negotiations that new agents may not know about. If you hire a qualified Realtor, they will demonstrate their value.
Do You Need to Hire a Realtor to Buy a Home?
It is not required to have a Realtor working on your behalf, but most of the time it is free for a buyer to have their own representative. Most home buyers, even experienced buyers, will hire a broker they trust to guide them through the process. When professors have studied the impact a professional sales agent has on the outcome of home sales, they have found that experience matters. Agents with at least 5 years of experience negotiating contract have happier buyers, and better outcomes. Not all agents are equal, a bad agent can cost you time and money. We are happy to have a no strings attached conversation when you are ready.
How Does Buying a Home Work?
Here’s a quick guide:
- Pick a Realtor. Experience matters.
- Find a home loan and lender that works best for you.
- Checkout homes. Most buyers see 3-6 homes before choosing one.
- Negotiate an offer. In our crazy seller’s market, we may do this several times. Check our blog for tips to beat the multiple offer situation.
- Inspect the house. All kinds of inspections should be completed within first 15 days.
- Finish loan approval process. Never argue with the underwriter.
- Take one final look at home you are buying before closing.
- Close on the house! Do not forget your picture identification and certified check!