I hear from a lot of potential home buyers that they would like to own a home, but have uncertainty about where to begin and what they can afford. There’s anxiety caused from our rapidly changing economic situation, the inherently crazy SF housing market, and conflicting information about how this all affects them. This is all very overwhelming and some folks just throw up their hands or defer thinking about it.
It’s not surprising people are struggling with these challenges: the global recession has put a huge swath of Americans thru the ringer, our government seems unable to accomplish even the most basic of tasks, and job security is a thing of the past.
But there are also positive indicators – the SF housing market is experiencing strong growth, the stock market is steadily moving up and to the right, and the bay area has a solid economic outlook. It’s a great time to buy again by many accounts, but how do you really know?
You can eliminate (or at least reduce) uncertainty by increasing the amount of relevant information available to you. Buying a home has to be based on an objective assessments of your situation. Assessments need to be based on data in order to be interpreted as information which leads to clarity.
And clarity is the key.
A good place to start is by partnering with your Realtor(R) to assess the marketplace as well as your financial strengths. You should view your Realtor® as a real estate consultant — someone who is here to help you understand how to take advantage of the current market situation and help you put together a plan to reach your goals.
Here are five steps to help you get to clarity and on the right path to success:
1. Clarify your goals wants, needs – take some time to write down what’s important to you vs what is nice-to-have. These are important quality of life considerations like commute time, proximity to people and places you enjoy and the space to do the activities that bring you happiness. You should review and discuss the results with your family and your Realtor®. Here’s a questionnaire to get you started.
2. Review your financial strengths with a mortgage expert – what are you able to qualify for based on your current or anticipated income, debt, credit scores, and down payment? Discuss with your family what level of monthly expense you’re comfortable taking on. A mortgage broker is fully equipped to help you here. Ask your Realtor® who to talk to.
3. Assess your current property’s value, assuming you own and want to sell. If you rent, calculate how much of your landlord’s mortgage you’re paying each month. Don’t forget to factor in the tax benefits you’d gain by writing off mortgage interest – it’s probably a whopper. Again, your Realtor® can provide a property valuation by looking at comparable properties in your area and a CPA or your tax adviser can help you with an estimated tax savings (there are also calculators for this on the web).
4. Look at properties that meet your criteria – both in terms of the properties themselves (features, style, neighborhoods) but also how they fit into your financial picture (monthly payment, down payment required, projected costs compared to your current costs). Your Realtor® can help you with this at first on paper to determine how closely your dreams match your realities. You should iterate at this step until you have a realistic vision for your future home.
5. Develop a detailed plan. Once you’re clear on what you really want and can afford, you have your goal. Now it’s a matter of working backwards and developing the plan to get there. Look at scenarios where you increase your down payment and see how that reduces your recurring expenses. Maybe you need to double-down and save a year to get what your want. Or maybe you’re better off than you thought and can take action sooner rather than later.
Whatever the outcome – at least you know. And knowing is half the battle (Go Joe!).