Tuesday, October 30, 2018 / by Geoffrey Zahler
One of the conversations I have on a weekly basis is with friends, clients, leads, on whether or not it's time for them to buy a home. We've all been there. When do you jump in? When do you stop paying someone else's mortgage and start freeing your financial future? For those that are ready, we get a move on... we start building that dream. But for those that are not ready, I generally hear one of seven excuses, shuffled and on repeat, about why someone is not buying a home.
Do you fit into one of these Seven Reasons?
1) I don't have enough money for a down payment!
- This is one I get a lot, and I totally understand it. But do you REALLY know what a down payment is going to cost you? Like, really? Have you talked to someone, a Realtor like me or a Lender, that can describe and explain how much you may need for a down payment? Because, the answer may surprise you. Between seller assistance and certain loan programs, you can actually buy a house in 2018 without ANY down payment. Think I'm nuts? Check out these options:
Down Payment Assistance Programs can provide as much as 3% to help a buyer with closing costs, sometimes even more depending on the program. Are you a teacher? Check out the Home is Possible Program! Did you serve in the military, or have a direct family member (spouse) serve? With a VA loan, you can get 100% financing, have the loan cover the funding fee, AND have a seller pay for some or all of your closing costs! We just had a buyer purchase a home for $375,000 and he came out of pocket less than $2,000!
Even if the seller will not offer to pay some of your closing costs, there are loan programs out there that can offer as little as 1-3% down. If you're going to do an FHA loan, you'll have a lower rate, and will have to put only 3.5% down.
If you're currently renting and paying about $1500 a month in rent, that's equivalent to a $275,000 mortgage. Even if you put 3.5% down, that would get you a purchase price of about $285,000! In Las Vegas there are currently 1,895 homes on the market and available RIGHT NOW (as of 10/30/18) that are priced at $285,000 or less!
If you can scrape together a couple months of rent and save it, you can afford a home!!!!
2) My Credit isn't Good!
Define Good! What do you define as good? Because in order to purchase a home, if you're going with an FHA loan (government backed/insured), your credit score needs to be above 580. If you're going with a conventional loan (as little as 3% down), your credit score must be at least 620. Just so you know, 80% of all credit scores in the USA are above 580, and 75% are above 620. So if you're in the top 75%, you already have a credit score high enough to qualify. Lower? Not a real issue; between credit counseling and credit repair services, with the right PLAN in place, you can increase your score in a short period of time. And yes, we know some great credit repair specialists if you need that help! Don't be afraid to ask. If credit is what is holding you back, don't let it be! Get on the right path, and do so now!
3) I don't think I'm going to be living here that long! Why bother Buying!
How long are you going to live here? A year? 2 Years? The reasoning behind me asking is all about taxes. Did you know that if you're in a home as a primary residence for at least 2 years, the money you make on the gain can be TAX FREE? Yes, tax free. If you're single, you are eligible to waive the capital gains up to $250,000, and if you're married, it's up to $500,000. Not to say that you're going to make that much money, but think about this. Say like you're single, and you buy a home here January 1, 2019, and pay $400,000. Then you decide to sell in 2021 (after it's been at least 2 years and one day) and you sell the home for $500,000. Your gain of $100,000 (give or take based on closing costs) would be TAX FREE!!!!!!!
If you're in a home for at least ONE year, it won't be tax free, but it will be taxed as a capital gain, and not ordinary income. Capital Gains tax is LESS than ordinary income. So again, with the same example above, instead of it being tax free, you would be taxed at a lesser amount, saving you THOUSANDS!
If you would consider buying a stock or other investment and not holding it for at least a year or two, why not consider a home purchase? It's a great investment, and also gives you a place to live and provides tax incentives and advantages.
4) I don't want to deal with the maintenance
This one is easy. What type of maintenance? If you're worried about yard maintenance, have you considered a townhome or a condo? This will give you property ownership, and for a HOA fee, you can have your common areas maintained for you!
If you're more concerned about the interior maintenance and don't consider yourself to be handy, that is what a Home Warranty is for. For a yearly fee (often less than $500), there are companies out there that will warranty the mechanical and plumbing aspects of your home. Dishwasher breaks? Call the warranty company. Heater goes out? Call the warranty company. Water Heater explodes... you get the idea. For a trade call of usually $100, you will only have to make one call, and the warranty company will send the right person out to assess the issue, and will make the repairs or replacements for you.
Our warranty company has personally fixed and or replaced part of our heating system, installed a brand new water heater, and installed a brand new garbage disposal for us! These things are worth every penny for those that don't know a philips head screwdriver from a flathead screwdriver. Take my word for it!
5) I have Champagne Tastes and a Light Beer Budget - I can't afford the home I WANT to live in!
This one is always fun to discuss, especially because we live in such a flashy city. I get it. But if you think about it, how else are you going to start your nest egg? This is the reason we have the term "Starter Home" in our language. Not everyone can make their first purchase in Red Rock Country Club or other high end community. We all have to start somewhere, so why not start now. Did you know that the average American only lives in a property for 5 years! There will be other homes in your future. Starting to build equity NOW will make the step up house that much easier and quicker to obtain. We want to be a part of your journey. Even if the mansion is not in your budget now, let's put a plan together to help you get there in the future. Best way to do that, other than winning Mega Millions, is to start that equity nest egg with property.
6) I have my funds tied up in other investments!
I'm glad you do. I am a big fan of asset allocation and diversification. By no means am I saying you should ONLY buy property. But consider these advantages that property (especially primary residences) have over other more liquid investments:
- You can live in it
- You can write off the Mortgage Interest on your taxes
- You are paying the principal balance down every month, not paying someone else's mortgage off
- You can't be evicted by your landlord because he's selling or you are late with your payment (but you can be foreclosed on, so be careful)
- You don't need permission to paint your home inside purple, however, i wouldn't recommend that!
Lastly, Real Estate is the ONLY investment we're not making more of. We may be building homes, but we are not creating more land. Until we colonize the moon or another planet, what you see on this planet is finite. There is no more of it.
7) The bubble is going to burst
Where do you get your crystal ball? Mine doesn't say we're heading to a bubble. We have definitely seen a large run up in pricing over the last few years, but we are not showing any signs of a market collapse. While we may be heading into a softening, everyone is still pointing to a 3-7% increase in 2019 and beyond. Also, while talking about market collapses, I know everyone is still reeling from the 2008 financial crisis, and it's fresh in everyone's mind. Did you know that the last collapse is the ONLY time since the GREAT DEPRESSION that a Real Estate event triggered the recession? Every other time, it's more to do with a stock market collapse, or oil issue (embargo, etc) or inflation driven type of event. Additionally, while we've seen a run up on interest rates over the last 12 months (goodbye 4.125%), we are still well below the 30 year average. When the market was at full steam in 2005-2008, interest rates actually were in the 7.5% range; about 30% lower than we are now. Yes, rates are higher today than they were last year, but we're still cheaper than previous generations. The 1980's were filled with double digit mortgage rates!
So, are you buying a home? If you're not, is your excuse one of the 7 listed above? You can buy a home. Let us help you get there and stop paying someone else's mortgage.