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Declare Your Independence From Renting

homes0630_1By Lisa Lee

Owning your own home is an investment that builds wealth over time through appreciation.

If you have been longing to set sail for the land of homeownership, it’s time to pack your bags and jump on board with today’s interest rates while you can.

With current interest rates so low, many first-time buyers are qualifying for mortgages and taking the money they would spend on rent and investing in something they own.

“Homeownership begins with getting into the game and growing your wealth in stages,” says Carl Worthy, a REALTOR who conducts free seminars for first-time home buyers at Prudential Locations.

“The concept is simple: Unlike rental costs that have no long-term gain, mortgage payments are applied toward the principal of the house, increasing your equity in it over time and building wealth.”

Buying your first home doesn’t have to be difficult, if you know the right steps. Here are star-spangled tips to help you set a course for freedom:

Harness Low Interest Rates

Worthy explains why interest rates have such an impact on buying power: “Rates directly affect your monthly payment: The lower the interest rate on your home loan, the more buying power you have. The less you pay to borrow, the more home you can buy for a monthly payment that you can afford.”

Check Your Credit

It is helpful to know what the lenders will see. You can request a credit report from a number of agencies. Make sure it is up-to-date. If there are mistakes in your credit report, a good lender can help you correct them. If you have credit problems, your lender can help fix them, too.

Enlist Experts

Worthy recommends finding an experienced REALTOR who is trained and capable of helping you navigate Oahu’s competitive market, and can connect you with a reputable lender for loan prequalification.

“In today’s competitive market where sellers are receiving multiple offers, both the knowledge of your real estate agent and an offer that’s backed by a recognizable, local lender are critical to presenting a winning offer.”

Dig for Down Payments

One perceived stumbling block to homeownership is coming up with a 20 percent down payment. While it is true that the more money you can put down, the easier it is to get a loan, there are programs available that only require 3 to 5 percent down. VA loans allow qualified people to buy a home with no money down. A good loan consultant will help you evaluate your options.

Consider whether you have money in other places that can be used for a down payment. For example, money in trust (such as a family trust) may be used to purchase real estate. Money in 401Ks or IRAs may also be eligible for investing in real estate through self-directed retirement plans.

Don’t Forget the Tax Benefits

Home loan interest is tax deductible but many renters aren’t aware of this and don’t figure their tax savings into their ability to buy a home.

Being able to write off the interest on your home loan can be a significant savings. If you put down 20 percent on a $300,000 home and take out a mortgage at 4 percent interest, your mortgage payment would be $1,241 per month, of which $859 would be interest. If you are able to write off all the annual mortgage interest paid, you would receive an annual tax deduction of $10,316.

To see what your individual tax benefit would be, check with a qualified tax advisor.

Get Prequalified

Prequalification is a key step to understanding your buying power. It gives you a detailed, realistic picture of what a home loan will cost, and thus, what you can afford to pay for a home.

Prequalification is also key to having your offer accepted by a seller. Worthy explains, “In today’s competitive market, prequalification is necessary to show that you are a serious buyer whose offer is backed-up by a lender. It tells sellers that you can close the deal.”

During the prequalification process, your loan consultant will help you evaluate the financing options that are available to you based on your income, borrowing needs and credit history. They will review your earnings and employment history, credit history, other assets (such as savings accounts and retirement plans), and debts.

Worthy likes to remind people that your first home won’t be your only home or your last. “Your first home is a stepping stone: as your wealth builds and your life changes, you can leverage your equity into future homes that suit the needs and goals of your changing world.

Carl Worthy’s homebuyer seminars are open to the public. Call 377-4642 for details.

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