Buying that first home

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By Margie Harper


Buying a first home is a big decision and understanding some of the process can take you over the threshold of thinking about it to actually doing it.

Why buy, instead of renting, is a typical question. The answer is, a home is an investment. When rent is paid and the check is written the money is gone forever. Other benefits include accumulation of home equity, tax incentives and the pride of owning a home.

How much money is needed to come up with to buy a home? That will depend on a number of factors, including the cost of the house and the type of mortgage. In general, a home buyer will need to come up with enough money to cover three costs: earnest money - the deposit that is collected on the home and submitted with the offer to prove to the seller the buyer is serious about wanting to buy the house; the down payment - a percentage of the cost of the home that is paid when going to settlement; and closing costs - the costs associated with processing the paperwork to buy a house.

When an offer is made on a home, the earnest money will be put into an escrow account. If the offer is accepted, the earnest money will be applied to the down payment or closing costs. If the offer is not accepted, the money will be returned to the buyer. The amount of the earnest money varies. The more money that is put on the down payment, the lower the mortgage payments will be.

Closing costs are paid at settlement. These costs cover various fees the lender charges and other processing expenses. When applying for a loan the lender will give the buyer an estimate of the closing costs, so there will not be any surprises.

Knowing how much to offer in buying a home is a question that comes up often. Take into consideration the following items:

  • Is the asking price in line with prices of similar homes in the area?
  • Is the home in good condition or will a substantial amount of money need to be spent? In making this big investment a buyer will probably want to get a professional home inspection.
  • How long has the home been on the market? If it has been for sale for awhile, the seller may be more eager to accept a lower offer.
  • How much mortgage will be required? The buyer should be able to afford whatever the offer is made.
  • Is it the home the buyer really wants? If it is, the closer to the asking price, the more likely the offer will be accepted. In some cases if competing with others for the house, a buyer may have to offer more than the asking price.

Sometimes an offer will get rejected, but that should not be a stopping point. They often do! Negotiations can go back and forth several times before a deal is made. More money may have to be offered with the possibility of asking the seller to cover some or all of the closing costs or to make repairs that would not normally be expected. Buyers should not get so caught up in negotiations and lose sight of what is really wanted and how much house can be afforded.

Homeownership is an investment in the future. It offers immediate benefits and long-term value. It helps build wealth by increasing in value over the years. The best reason is having a home is that belongs to you.

Margie Harper is executive vice president of the Heart of Kentucky Association of Realtors.