Introduction to buying a home in the US

In the US, for many people owning a home is part of the American Dream. While owning a home has many benefits, the ownership brings many responsibilities such as mortgage payments, home insurance, and property taxes. Here are some quick points for owning versus renting:

Owning Renting
» You own the place and free to use the property as you see fit » Rentals are subject to landlord restrctions
» You can make or loose money when you sell. » The worst: you may loose your security deposit and/or pay rent if you move before your lease is up. You can’t expect to make money when renting
» Repairs and damages are burden on you » In general, you address the issues with the property with your landlord.
» High property taxes when property values go up. Setting you free from paying property taxes will require sale of your house. This is not always easy. » If you know your rent payments will go up, you can move to a cheaper place.
» Monthly costs: mortgage(s), home insurance, property taxes, HOA fees, gas and electric bill, and water bill. » Monthly costs: rent payment, gas, electric bill, and water bill or these may be included in your rent.
» In general, owning a home makes sense if you want to live at one place for many years and build value. If the home prices fall, you may loose money when you sell. So owning a home has the potential to make or loose you money when you sell. » Renting makes sense if you are on the move, have unstable income, and don't want the responsibilities and risks associated with owning a home.
Front view of a nice looking home
Front view of a nice looking home worth owning
A side view of an apartment building showing rental units
A side view of an apartment building showing rental units
A home for sale sign
A home for sale sign

Searching for homes online is a great way to expedite your search to find your American Dream. Real estate websites offer videos, textual descriptions, pictures and more just in a few clicks. Alternatively, you can work with your local real estate agent to find and you properties of your interest. Get recommendations from your friends, relatives or co-workers to a find a decent and local real estate agent. You want to hire an agent who knows the area where you want to buy your house. You can also look in your local newspaper classifieds under homes for sale for real estate agent ads.

Where do you search for a home? Here are some ways:

  • Search online real estate listing websites
  • Talk to a real estate agent
  • Look for "For Sale" signs in the neighbor where you wan to buy
  • Check local newspaper classified section
  • Explore local real estate printed listings

Most people need to get a loan to pay for a home unlike paying immediately in full for most items we purchase everyday. Paying in full for a home purchase price is beyond reach for many in the US. This is why we take a loan — called mortgage. Getting a mortgage means that you are borrowing money at a specific interest rate for a specific period of time from a bank or other financial service provider. While you own the home, you will be required to make your mortgage payments on monthly basis. If you continue to fail to pay your mortgage, you may loose your home and this will also adversely affect your credit.

Work with a lender you trust the most. Shop around before you sign any mortgage deals. Talk to your friends and relatives to find the best deal and lender. Also, consult websites to determine current mortgage rate offers. As the mortgage is a long-term obligation, it makes sense to make sure you do everything to find the right lender.

A quick tip

Beware of lenders charging very high interest rates on mortgages. Lenders can take advantage of this practice if you don’t do your home work. There are laws to protect you from fraud, unnecessary expenses, and discrimination in buying a home. If you don’t do your part thoroughly, you won’t know if the bank has discriminated against you or you got the right deal. Find out more from US Department of Housing and Urban Development (HUD).

In addition to paying mortgage, you will also need to buy homeowner’s insurance. The insurance will cover against any possible future damage to your home. Insurance usually covers damage due to robbery, fire, bad weather, flooding. Check with your home insurance to understand the exact coverage you will have. You will also need to pay property taxes on the value of your home.

Buying a home involves stress and many papers. The stress can arise from any or all of the following questions/uncertainties:

  • Did the seller accept my offer?
  • Did I make the right offer? Did I offer too much or too little?
  • Will I get qualified for a loan?
  • What if I (or my spouse) loose job and how will we make the mortgage payments?
  • Is this the right investment for me (us) at this time?
  • Will I be paying too much in mortgage interest?
  • Is everyone involved in the sale of the house being fair and honest to me?
  • Will any addendums stop the deal?*

* Consider this example to understand why purchase of a home is not stress-free. Addendums (or changes) require all sides to agree before you reach the settlement table and this always is not easy. There can be multiple addendums in a single home sale and each bringing some level of stress on all involved in the sale (the buyer, seller, your real estate agent, seller's real estate agent, the title company staff, and mortgage company staff). If, for example, you offered $200,000 for a house and your offer is accepted. However, when it comes to your bank's appraisal, it determines the house is worth only $190,000. Now, the buyers and sellers will need to agree to a new price but this is complicated because the seller wants maximum from his or her sale while the buyer wants to pay only the minimum. By the time, you reach the appraisal stage, you, as a buyer, would have paid for home inspection (a few hindered dollars in Maryland, US). You may also be charged for the appraisal. If you walk away from the deal, you would have paid all this money without any gain and wasted your at least a few weeks of time.

Posted on 9/28/2007
by Raj Singh