To Buy or Not to Buy?
If you're planning to buy a home, you probably have good reasons for your decision. It may be that you share the feeling that owning your own home is a key part of the American dream. But there are also financial issues involved in buying real estate that you need to consider as well.
From one perspective, a home is an investment, maybe the single largest one you'll ever make.
Like certain other investments, real estate has the potential to increase in value over the years, so that you can sell it for more than you paid.
But unlike investing in stocks, bonds, variable annuities, and mutual funds, which you buy as a way to achieve your financial goals, most people consider owning a home as an end in itself.
REASONS TO BUY
REASONS TO RENT
If your parents or grandparents are willing to help you out with buying a home, each of them can give you a tax-exempt gift of up to $15,000 a year. It's a case where a timely gift may make a lot more sense than an inheritance.
Be careful, though. Gifts over the limit may be taxable for the giver. And loans from family members earn imputed interest if the lender doesn't charge you any - or enough - to borrow. That means he or she has to pay income tax on the interest that normally would be paid even though you didn't pay it. One exception occurs when a parent's loan enables a child with no investment income to buy a home.
HOW BUYING WORKS There are usually three distinct phases in buying a home: accumulating the down payment, finding a mortgage, and building your equity.
WHAT IF YOU'RE TURNED DOWN?
If you're turned down, ask why. Find out which credit reporting company the lender used to check on your credit history and request a copy of that history from the company. It should be free of charge since you've been turned down. If there are any obvious errors, follow the instructions on the report to have them corrected and check up to see that the changes have been made. If the negative information is correct, and your credit history has flaws, at least you'll know the factors that may be blocking your application and can begin to strengthen your credit credentials.
Sometimes you can make out better applying to a bank or credit union you already have a relationship with or using a mortgage broker who specializes in finding interested lenders. The broker will charge a fee, so you'll want to be sure that cost is necessary. You might check out online mortgage sources. And, you might consider a private arrangement with sellers who would be willing to finance the purchase - although you don't want to do that without the advice of a real estate lawyer you trust.