In this article, we will go in depth into the first step to buying a home and deciding if you are ready to buy a home. Choosing to make the leap into home ownership involves a lot of variables. Here are just a few:

1. Is this a good investment? Becoming a homeowner rather than a renter, means diverting the money you pay on rent into a real estate investment that you live in. Instead of ‘throwing money’ away each month on a roof over your head, you could be investing in yourself by owning your own home. Although this is quite appealing, be careful, not all investments make money. Cashing out a real estate investment is usually done by selling the home and cashing out the equity. Equity is the difference between what you sell the home for and what you owe on your mortgage at the time of sale. Some things to consider when purchasing a home as an investment:
   • Be sure that you can truly afford the home that you buy. Remember that missing between 3 and 6 of your monthly payments could result in your home going into foreclosure.
   • Making sure that you get a ‘good price’ when you purchase your home is key in making your home a good investment. Your real estate agent will provide you with comps- comparable homes- when it’s time to put an offer on a home. These recently sold comps show what similar homes in the area have sold for, allowing you to extrapolate the true market value of the home you are looking at. This is important as it will help you determine how much to offer for the home you are looking at. If you overpay for a home, it can take years before your home value matches what you paid for it.
   • Average long-term appreciation on single family homes in Hawaii is 4% per year before inflation. Zillow predicts that housing prices will rise 9.3% between November 2020 and November 2021.
   • If you have the skills, another way to increase the value of your home is by renovating an older home  in need of an update. Proceed with caution here as many improvements are not guaranteed to increase the value of a house. This is especially true if you choose very expensive improvements like high end appliances in a mid-market house or choosing a paint color that won’t appeal to most buyers.
   • If you are handy, buying a foreclosure might be a good way to get a ‘good price’ on a home. There are many factors to keep in mind when purchasing a home that’s been foreclosed so be sure to do your research beforehand.
2. Can you afford it?
   • Take a look at a mortgage calculator to get an idea of what your monthly mortgage payment would be on a house in your area.
   • It’s also a good idea to budget for an additional 1% of the purchase price of the home per year for the cost of maintaining your home. If your home needs renovations this expense could be a lot more.
   • Make sure you can afford the monthly mortgage, the monthly maintenance budget, and enough to cover any car or student loan payments, as well as your normal expenses like food, utilities, etc.
3. How much savings do you have?
   • Most traditional loans require you to pay 20% of the total sale price as a down payment on a home. If you are a first-time home buyer here are some programs that may help with this requirement.
   • If you don’t have a 20% down payment you can opt for mortgage insurance instead which will cost between 0.5-1% of the home value each year.
4. How long will you be living here?
   • Because the housing market goes up- about 4% on average in Hawaii- the longer you plan to keep the home, the more likely you will be to make money on it when it’s time to sell.
   • A good rule of thumb is that it takes about 5-7 years to recoup the cost of buying a home. If you are not planning to own the home for that long, you might not be able to make that money back when it’s time to sell.

I hope these questions help you decide if you are ready to buy a home. The next steps in buying a home include:

• getting your finances in order
• shopping for mortgage loans
• finding the right realtor
• house shopping
• closing on a home

Stay tuned for our next article on Home Buying Steps.