Hopefully you have done the math and understand the trade-off between rent vs. buy. Here we explore that more.
Emotionally, everybody would like to own their own house. So, after you understand the trade-off between rent and buy, the question becomes how you can make the buy option more financially sound. There are two major variables in this equation : growth potential and mortgage interest rate.
When you buy your first house, it is likely the situation is that you have limited budget and you plan to move to a bigger house couple of years down the road, which means that you will sell or turn it into a rental property. So, when you choose your first house, you have to consider how easy it is to sell or rent it out.
- as people always saying, real estate is all about location, location, location. You want to find a neighborhood which has good elementary school (since, most renter tends to be young and their kids are proberbly going to elementary school). You also want it in a quiet and kids friendly environment (e.g. Cul-de-sac is usually more preferred than stree corner).
- # of bed rooms. Maybe 3 bed room is more than enough for you, but 4 bed room house is much easier for rent and for sell.
Bascially, think about not only whether your first house fits you, but also whether it fits the profile of people who will rent or buy your house couple of years down the road.
The best way to get a good mortage rate is to have a good credit score, for which we spend the whole Chapter 5 to talk about. The other factor is down payment. Assuming you have done your homework on both of those, the only other thing you can do is to find a good mortgage broker and get 5 year ARM. I usually recommend 5 year ARM because it offers better rate.
- some people are concerned about the rate hike after 5 years. You can always refinance during the 5th year and lock in another good rate. By that time, you should have even better credit score and better down payment, if you are doing your homework right;
- some people are saying that low interest rate at 5 year ARM means they pay less on the principle. That's totally not true. Every month, you can always pay more than the per month payment, and the extra goes into the principle. (See moer at Sec 7.3 about this)
