Home Buying Techniques

Buying a home is an exciting and important life event. Being a first time home buyer means that you will have many decisions to make — and just as many questions that need answering.

Buying your first home is a huge step. These helpful home buying tips may reduce confusion about mortgage payments and the cost of buying a house:

• Get preapproved – Buyers should always get preapproved before they begin house hunting. Buyers should get a written preapproval from a reputable mortgage lender before they start shopping for a home.
• Calculate your mortgage payments – Buyer’s mortgage payments might be the same or less than rent payments. The (principal and interest) monthly payment on a $200,000, 30-year, fixed rate mortgage with an interest rate of six percent (6.25%) is $1,231 — less than what some people pay for rent (taxes, insurance and any other fees, including closing costs, are extra).
• Share closing costs – Buyers may ask sellers to pay for closing costs. As part of the negotiating process when buying a house, the buyer may ask the seller to pay for a percentage of the non-recurring closing costs, sometimes saving thousands of dollars for the buyer.

Also ask yourself, "Is it cheaper to rent than to own?"

Here’s a useful way to calculate and compare: Take the price of the type of home you want in your market. Now see how much it would cost annually to rent a similar property in the same area. For example, if you can purchase a home for $540,000 but can rent a similar one for $36,000 a year, your so-called price-to-rent ratio would be 15.

In general, buying starts to look attractive when the P/R ratio is around 15 or lower. (The current national average is 12.5.) As your market’s P/R ratio falls, more sellers are likely to come into the market. So demand could pick up and help stabilize home prices.

Of course, 15 is just a ball park. While P/R ratios in many markets have come down lately, they’re still high relative to their long-term average.

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