Homeownership: A Complete Guide of the Process from A-Z
Why is Homeownership Desirable?
Homeownership allows you to live more securely, free from the rising costs and unpredictable future that renters must face. Escaping the thin shared walls of an apartment provides you with more privacy and allows you to customize your space and make it your own. There’s something about having the freedom to paint your walls and redo your cabinets however you wish that makes you feel in control, accomplished, and proud of yourself!
Does Homeownership Build Wealth?
Owning your home also means a growth in your wealth. You can build equity as the value of your home rises while saving money in other areas like your taxes and mortgage rate.
Homeowners are given more deductible tax breaks, including any interest paid in their mortgage loans. If your loan is under $1 million, you can write off the amount you paid in interest the year prior. Along with paid interest, property taxes and mortgage insurance (which tend to take up a large portion of monthly loan payments) may also be deductible.
Why is Homeownership Better than Renting for the Long Term?
Compared to long-term renters, homeowners have greater financial and social stability than renters. With a long-term living commitment, you can settle down without worrying about a rise in rent. Homebuyers pay a fixed mortgage rate that can’t rise regardless of interest rates or how the economy is doing.
Being consistent with your monthly loan payments will also build up your credit history, making you more trustworthy and credible to lenders in the future.
Purchasing a Home
Whether buying or selling your home, your best bet is to get in touch with a real estate agent you can trust.
When searching for a real estate agent, it’s good to find someone with proven credentials and experience in their field and who has your best interest in mind.
Are there any programs or grants to help first-time homebuyers?
Yes! If a low credit score or rising house prices have you stressed out, consider that financial assistance resources are available to aid you in buying your next home.
Are VA loans good for buying your first home?
VA loans are eligible to American veterans or their surviving spouses (provided they do not remarry).
Some of the benefits of VA loans for first-time homeowners include:
- $0 Down Payment program
- No credit score requirement
- No monthly PMI
- A person qualifies after six months of active duty in any branch of the military (three months if served during wartime)
- Seller contributions can be up to 6% of the home’s purchase price
- Can qualify two years after foreclosure, short sale, or Chapter 7 Bankruptcy
Borrowers can also qualify for a 2nd VA Loan under specific conditions:
- Must have enough eligibility left (VA calculates eligibility amount)
- 2nd Home purchase price must be $144,000 or higher
- If maintaining a current VA loan, must justify buying another home with VA (ex. Growing family, moving closer to job, closer to family, downsizing)
Two other important things to note about VA loans are that they are for primary residence only and have a maximum loan amount of $453,100.
Rent-to-own (RTO) programs allow buyers to rent a home for an agreed-upon period and purchase it within the lease period.
If you’re considering rent-to-own, there are a variety of programs and tools available, including:
- VA Loans
- Down Payment Assistance
- Credit Repair
- Home Partners Of America
Down Payment Assistance
Down payment assistance enables renters to transition into buyers, especially first-time home buyers. It usually takes the form of a grant that covers 5% of the purchase price. Requirements for qualifying include a minimum credit score of 640, meeting the maximum household income requirement, and participation in an education course.
Examples of down payment assistance programs include:
- Home in 5
- Pathway to Purchase
Power Buyer Programs
Power buyer programs are essentially home buying services that empower buyers by helping them make cash offers on homes, bridging finances, and trade-in programs.
Read: Rent-to-Own Process
Selling Your Home
When selling your home, you’ll need to do a property value assessment with your real estate agent before putting it on the market–this will show how much you can sell your home for.
The assessment accounts for the price of neighboring properties and information about your own, including amenities and added developments like a pool or guest house that can increase the market value of your home.
Read: The Home Selling Process A Guide for Everyone
Renting a Home
What is required to rent a house in Arizona?
Responsibilities and requirements will be written out in a contractual agreement signed by both you–the tenant–and your landlord.
Requirements will vary from landlord to landlord.
Landlords generally request:
- A tenant background check
- A comprehensive credit report (many landlords require a credit score of at least 550 – otherwise, a co-signer may be required)
- Pay stubs to verify employment and income
- Contact with your former landlords to verify rental history
Along with the initial requirements for renting a house in Arizona, tenants are also expected to adhere to the contractual agreement.
Common contractual expectations include:
- Paying rent on an agreed monthly date
- Keeping the house safe and habitable
- Keeping fixtures clean and sanitary
- Making small repairs and keeping up with ordinary maintenance
- Not disturbing fellow tenants or neighbors
Read: Rent-to-Own Pros and Cons
A mortgage is a loan agreement between you and a lender (bank, credit union, mortgage broker, investor, etc.). Your lender agrees to lend you an amount of money to purchase or refinance your home.
If you’re unable to repay the amount borrowed, the lender has the right to take your property.
Apply for Mortgage Pre-Approval
The first step in mortgaging a house is the pre-approval process. This tells you how much a lender is willing to lend you. Their decision is based on your income, credit, and assets. Knowing how much a lender is willing to let you borrow gives you a clearer idea of which houses you’ll be able to afford and narrow your search.
What exactly is a reverse mortgage? Is it legal?
A reverse mortgage occurs when an entity pays a homeowner an agreed-upon monthly amount to invest in their home and eventually own it one day when the homeowner is no longer there.
Homeowners who do this are usually seniors who plan to live only another 15-20 years in their homes. The outside entity will pay them an amount monthly that goes towards the predicted value of the home 15-20 years from then. Once the homeowner moves or passes away, ownership of the property then goes to the investor.
The homeowner benefits by essentially paying their mortgage back (thus calling it a reverse mortgage), and the investor will be paying much less for the home through the increment payments.
Read More: Pros and Cons of a Reverse Mortgage
What is home equity?
Home equity is the value of a homeowner’s house based on the difference between its true market value and how much is owed on the mortgage. Home equity will increase as the market value increases – and as you pay off your mortgage.
For example, if your home was appraised at $150,000 and you still owe $130,000 on your mortgage, you have $20,000 in equity.
How does a home equity loan work?
A home equity loan is a second mortgage that you take out with a fixed amount and interest rate that must be repaid according to the agreement.
Some of the usual requirements for a home equity loan include:
- A minimum of 15-20% equity in your home
- A minimum credit score of 621
- A maximum DTI of 43% (50% in some cases)
- A payment history that shows you pay your bills on-time
- A history of stable employment and income
Is equity in a house good?
Yes! Home equity is one of the top reasons why owning a home is greater than renting. As your home’s equity grows, you’ll have a greater return on investment.
Refinancing Your Home
What is refinancing a mortgage?
Refinancing allows you to pay off an existing mortgage loan by taking out a new loan reflecting current interest rates. The best time to refinance is when interest rates significantly drop, and many property owners will do this to potentially receive a cash payment at closing.
The extra cash gained from the difference in your current mortgage and the second mortgage can be used for renovations or to assist with purchasing another property, called Cash-Out Refinancing.
Renovating Your Home
Is renovating my house a good idea before the sale?
Renovating your house before selling it allows you to increase the value of your property, making it more enticing to prospective buyers and even allowing you to raise the price if possible.
For example, houses with landscaped yards or redone kitchens will attract homebuyers interested in these features. Other renovation projects that can deliver a high return include garage door replacements, vinyl windows and siding, remodeled attics and basements, and upgraded appliances.
But beware–some renovations can hurt your home’s market success.
One of the biggest risks is adding a swimming pool. While there are plenty of good reasons to put a pool in your yard, it might be best to hold off if you plan to move in the near future. Many families with young children are looking to buy their first home and are more inclined to avoid homes with pools. Swimming pools are safety hazards, but they also add additional maintenance costs and energy.
Be careful with any luxury upgrades to your home before you put it on the market. Buyers may not be interested in a price jump for your new flooring. You also risk becoming the most expensive house on your block, which can be another turn-off otherwise interested buyers.
Foreclosing Your Home
What happens during a home foreclosure?
During a home foreclosure, a house is seized by the lender (typically a bank) and put up for sale. The house may be short sold in the pre-foreclosure stage by the homeowner, auctioned off to a cash buyer, or sold by the lender in the bank-owned stage.
What is a senior living and retirement community?
Senior living and retirement communities are for those who have begun receiving social security retirement benefits, typically about 62 years old, but some communities allow in those who are a minimum of 55.
These communities offer many amenities as well as relaxing and fun activities for community members to partake in together.
Read More: Everything you need to know to Retire in Arizona
Become a Homeowner with the Help of Our Experts at Century 21 Northwest
Buying or selling your home is emotional and certainly no light task.
At Century 21 Northwest, we want you to feel ready and on the right path to finding your new home. That’s why we provide you with expert knowledge from our top real estate agents that work with your preferences and situation to make sure nothing’s missed and your needs are met every step of the way.