Buying a Home


First, of course, the legal disclaimer


Please note that the information in this guide is not to be used as consulting, accounting, or legal advice. The following information is provided with the understanding that this article is not a substitute for professional advice, and is merely for informational purposes. is not responsible for the use of any information contained below or for the factual accuracy of any statements made below.


The Article


Buying a home is probably the biggest purchase/investment that a person makes in a lifetime (cliché, yes we know). However, unlike other investments, a home has utility. If you are purchasing your primary residence, you can live in it while the value of the property increases. Concurrently, you earn equity in your home as you pay down your mortgage balance. According to most real estate economists, the average home value doubles in price every 8 to 10 years depending on the area where the home is being purchased. As such, your $200,000 house will likely be valued at $350,000 to $400,000 after living in the home for ten years. Additionally, you will have paid down approximately $25,000 of the mortgage (assuming a 30 year fixed prime rate loan). As such, the equity in your home would be $150,000 to $225,000 after a ten year holding period.  


Of course, this type of increased value is subject to a number of economic variables. If the area you live in becomes more prosperous during that ten year period, then the appreciation rate for your home may actually be higher. The converse is also true. If the crime rate increases or there is a large loss of jobs in your area, then your house can depreciate in value. As such, when buying a home it is important to consider the area and its growth prospects.


Unless you are very wealthy, chances are that you will require a mortgage for your home purchase. We encourage you to read our article regarding MORTGAGES (and how mortgages have created the current financial issues). The most commonly sought after mortgage is a fixed rate loan with a 15 to 30 year payoff period. These loans allow you to pay the same monthly mortgage fees due every month without every changing. Adjustable rate mortgages (ARMs) continually have interest rate adjustments, which are typically tied to the prevailing interest rates tied to the Federal Funds discount rate, treasury bills issued by the US government, or the more international LIBOR (London Interbank Offered Rate). As these interest rates fluctuate, so does your mortgage payment. Adjustable rate mortgages (typically with teaser introductory rates) have been one of the most central issues to the current credit issues that are being faced by everyone on a global level.


Many people depend on the increasing value of their home as a major part of their expected retirement savings. After raising children, many people go on to sell their primary residences with the intent to move into a smaller house. The profits earned from the sale often greatly compliment the savings you have in your 401(k) or IRA accounts.


In short, when buying a home, it is imperative to focus not only of the quality of the residence, but also on external factors including the neighborhood, the growth of the area you live in, and your expected mortgages costs during the time that you own the property.

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