SELECTING HOUSING
Real estate —land and anything that is attached to it—is one investment that many people eventually acquire. Getting started with real estate usually means finding a place in which to live.
Renting Your ResidenceMost people start by renting an apartment. As renters, you are freed from much of the work and expense of property maintenance. Renting also makes it easier for you to move when needed. As a tenant, you must take care of the rented property, but you are not able to call the apartment your own.
Many people want to own a house and yard that they can maintain and fix up just the way they want. To realize this goal, they must save money for a down payment on a house.
Owning a Mobile HomeTo become a real estate owner, some people purchase a mobile home. This financial decision provides the opportunity for home ownership. An advantage of owning a mobile home is having a place to call your own. As time passes, a person might consider other types of real estate purchases.
Buying a HomeUnless you have thousands of dollars available, you will need to borrow to buy a house. A mortgage is a legal document giving the lender a claim against the property if the principal, interest, or both are not paid as agreed.
Mortgages are long-term loans—for 15, 20, or 30 years—that require monthly payments. These payments are usually higher than rent. A mortgage payment includes a portion of the principal and interest charges. In addition, it often includes money to be used to pay property taxes and insurance. Money used for a down payment reduces the amount of loan needed with the mortgage.
Interest rates on mortgages may be set for the term of the loan. This type of mortgage is called a fixed-rate mortgage . Market interest rates generally increase or decrease during the life of a mortgage depending on economic conditions. Therefore, lenders also offer an adjustable-rate mortgage (ARM) . The interest rate of an ARM is raised or lowered from time to time depending upon the current interest rate being charged by lenders. Monthly payments for ARMs may be lower, especially in the early years of the mortgage, compared with fixed-rate mortgages.
Services of Real Estate AgentsBuying a house is not a simple matter. Most homebuyers use a real estate agent. This person is trained and licensed to help with the buying and selling of real estate. Someone who wants to buy a house contacts a real estate agent. The agent helps the person decide what they want in a house. The agent will also arrange for the prospective buyer to view homes offered for sale.
Sellers of real estate may also use the services of a real estate agent. Someone who wants to sell a house contacts an agent. The real estate professional helps to set the selling price and promotes that the house is for sale.
Other Real Estate ProfessionalsLegal matters are also a part of the real estate purchase process. A lawyer, working with the real estate agent, will help you with the transaction. A lawyer assures that your property has no claims against it, such as back taxes. Having a lawyer represent you in the transaction can help to avoid legal problems.
When buying a house, an appraiser's report on the home's value is also important. An appraiser is someone trained to estimate the value of property and who can give an official report on the value. Factors such as the quality of construction, the location, and the price of similar houses are considered when doing the appraisal.
Buying a CondominiumIn some areas, condominiums , or condos, are popular. This is an individually owned housing unit in an apartment-like complex. The maintenance and yard work are normally taken care of with a service fee paid by condo owners.
Real estate —land and anything that is attached to it—is one investment that many people eventually acquire. Getting started with real estate usually means finding a place in which to live.
Renting Your ResidenceMost people start by renting an apartment. As renters, you are freed from much of the work and expense of property maintenance. Renting also makes it easier for you to move when needed. As a tenant, you must take care of the rented property, but you are not able to call the apartment your own.
Many people want to own a house and yard that they can maintain and fix up just the way they want. To realize this goal, they must save money for a down payment on a house.
Owning a Mobile HomeTo become a real estate owner, some people purchase a mobile home. This financial decision provides the opportunity for home ownership. An advantage of owning a mobile home is having a place to call your own. As time passes, a person might consider other types of real estate purchases.
Buying a HomeUnless you have thousands of dollars available, you will need to borrow to buy a house. A mortgage is a legal document giving the lender a claim against the property if the principal, interest, or both are not paid as agreed.
Mortgages are long-term loans—for 15, 20, or 30 years—that require monthly payments. These payments are usually higher than rent. A mortgage payment includes a portion of the principal and interest charges. In addition, it often includes money to be used to pay property taxes and insurance. Money used for a down payment reduces the amount of loan needed with the mortgage.
Interest rates on mortgages may be set for the term of the loan. This type of mortgage is called a fixed-rate mortgage . Market interest rates generally increase or decrease during the life of a mortgage depending on economic conditions. Therefore, lenders also offer an adjustable-rate mortgage (ARM) . The interest rate of an ARM is raised or lowered from time to time depending upon the current interest rate being charged by lenders. Monthly payments for ARMs may be lower, especially in the early years of the mortgage, compared with fixed-rate mortgages.
Services of Real Estate AgentsBuying a house is not a simple matter. Most homebuyers use a real estate agent. This person is trained and licensed to help with the buying and selling of real estate. Someone who wants to buy a house contacts a real estate agent. The agent helps the person decide what they want in a house. The agent will also arrange for the prospective buyer to view homes offered for sale.
Sellers of real estate may also use the services of a real estate agent. Someone who wants to sell a house contacts an agent. The real estate professional helps to set the selling price and promotes that the house is for sale.
Other Real Estate ProfessionalsLegal matters are also a part of the real estate purchase process. A lawyer, working with the real estate agent, will help you with the transaction. A lawyer assures that your property has no claims against it, such as back taxes. Having a lawyer represent you in the transaction can help to avoid legal problems.
When buying a house, an appraiser's report on the home's value is also important. An appraiser is someone trained to estimate the value of property and who can give an official report on the value. Factors such as the quality of construction, the location, and the price of similar houses are considered when doing the appraisal.
Buying a CondominiumIn some areas, condominiums , or condos, are popular. This is an individually owned housing unit in an apartment-like complex. The maintenance and yard work are normally taken care of with a service fee paid by condo owners.
BENEFITS OF HOME OWNERSHIP
The advantages of home ownership include tax benefits, increased equity, and pride of ownership.
Tax BenefitsAlthough you may pay both mortgage loan interest and property taxes on real estate you own, these costs can be to your benefit. Reduced income taxes result when the interest paid on a mortgage is included as a deductible expense. Real estate property taxes are usually also deductible when computing your federal income taxes.
Increased EquityFrom an investment standpoint, the potential increase in home value is an important aspect of ownership. Equity is the difference between the price at which you could currently sell your house and the amount owed on the mortgage. Equity builds up over the years. It increases rapidly in the last few years of a mortgage.
Because of appreciation , a general increase in the value of property that occurs over time, homes increase in value. During the 10 years that one family had lived in their home, its market value had increased to $244,000 and their debt decreased to $165,000. Therefore, their equity was $79,000.
Many factors affect the value of a home. Most important is location. In addition, the quality of schools, maintenance of the property, and home features increase home values. Features that can add to the value of a home include an updated kitchen, remodeled bathrooms, a master bedroom suite, a finished basement, and a large garage.
Pride of OwnershipAnother advantage of owning real estate is pride of ownership. Many people feel a sense of accomplishment when they buy a home. Having a home to use and decorate as desired is a strong motivation for many home buyers.
The advantages of home ownership include tax benefits, increased equity, and pride of ownership.
Tax BenefitsAlthough you may pay both mortgage loan interest and property taxes on real estate you own, these costs can be to your benefit. Reduced income taxes result when the interest paid on a mortgage is included as a deductible expense. Real estate property taxes are usually also deductible when computing your federal income taxes.
Increased EquityFrom an investment standpoint, the potential increase in home value is an important aspect of ownership. Equity is the difference between the price at which you could currently sell your house and the amount owed on the mortgage. Equity builds up over the years. It increases rapidly in the last few years of a mortgage.
Because of appreciation , a general increase in the value of property that occurs over time, homes increase in value. During the 10 years that one family had lived in their home, its market value had increased to $244,000 and their debt decreased to $165,000. Therefore, their equity was $79,000.
Many factors affect the value of a home. Most important is location. In addition, the quality of schools, maintenance of the property, and home features increase home values. Features that can add to the value of a home include an updated kitchen, remodeled bathrooms, a master bedroom suite, a finished basement, and a large garage.
Pride of OwnershipAnother advantage of owning real estate is pride of ownership. Many people feel a sense of accomplishment when they buy a home. Having a home to use and decorate as desired is a strong motivation for many home buyers.
COSTS OF HOME OWNERSHIPWhile there are important benefits to owning your own property, various costs also exist. Home ownership has costs such as property taxes, interest payments, property insurance, and maintenance.
Property TaxesProperty taxes vary greatly from state to state and community to community. Generally, real estate taxes range from 2 to 4 percent of the market value of the property. Taxes are based on the assessed value , which is the amount that your local government determines your property to be worth for tax purposes. Assessed values normally are lower than the market value, often the assessed value is only about half.
A home with a market value of $180,000 may be assessed at $90,000. If the tax rate is $60 per $1,000 of assessed value, the annual taxes are $5,400.
$90,000 ÷ $1,000 × $60 = $5,400
The tax rate is 6 percent of the assessed value, but only 3 percent of the market value.
Interest PaymentsInterest payments add to the cost of the house. A 30-year mortgage for $100,000 at 8 percent interest would result in more than $164,000 in interest paid over the life of the loan.
Property InsuranceProperty insurance is an essential home ownership cost. The value of the house, the construction material, the location in respect to other buildings, and the availability of fire protection are some factors that affect the cost of homeowners insurance. Typical annual home insurance costs are less than 1 percent of the market value of the house. Property insurance provides protection from fire, theft, accident, or other losses of your home or property.
MaintenanceThe cost of upkeep —maintaining your property in good condition—is important in home ownership. Annual upkeep costs average about 2 percent of the property's value. Postponing repairs or not taking good care of the house and yard through regular maintenance can be very costly in the long run.
Property TaxesProperty taxes vary greatly from state to state and community to community. Generally, real estate taxes range from 2 to 4 percent of the market value of the property. Taxes are based on the assessed value , which is the amount that your local government determines your property to be worth for tax purposes. Assessed values normally are lower than the market value, often the assessed value is only about half.
A home with a market value of $180,000 may be assessed at $90,000. If the tax rate is $60 per $1,000 of assessed value, the annual taxes are $5,400.
$90,000 ÷ $1,000 × $60 = $5,400
The tax rate is 6 percent of the assessed value, but only 3 percent of the market value.
Interest PaymentsInterest payments add to the cost of the house. A 30-year mortgage for $100,000 at 8 percent interest would result in more than $164,000 in interest paid over the life of the loan.
Property InsuranceProperty insurance is an essential home ownership cost. The value of the house, the construction material, the location in respect to other buildings, and the availability of fire protection are some factors that affect the cost of homeowners insurance. Typical annual home insurance costs are less than 1 percent of the market value of the house. Property insurance provides protection from fire, theft, accident, or other losses of your home or property.
MaintenanceThe cost of upkeep —maintaining your property in good condition—is important in home ownership. Annual upkeep costs average about 2 percent of the property's value. Postponing repairs or not taking good care of the house and yard through regular maintenance can be very costly in the long run.