Unlike any price you've paid

Dated: July 17 2021

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It’s difficult for most people to think clearly about the price of buying a home, not only because it’s so much more expensive than other things we buy, but because the buying process is fundamentally different from other purchases. For example, most often when you buy something, there’s a direct connection between its price and how much is deducted from your bank account. Not so with buying a home. The amount you pay with your down payment is between you and your lender, and your monthly mortgage payments depend on the term of your loan, your credit rating, and the prevailing interest rate when you borrow. It helps to think of a home purchase as really being two transactions—first buying a pile of money on time, and then using that money to buy real estate.

Another difference between most purchases and buying a home is that most people only finish paying for their home on the day when they finally sell it. A typical time period for a mortgage is 30 years, but the average American homeowner holds onto their house only a little over 8 years. Since residential real estate in Southern California typically appreciates in value, the chances are that some portion of the price you “pay” for your home will actually be money provided by the person who eventually buys it from you!

So, what is the smart way to think about home prices? Check to see whether a particular price is in line with what’s happening in today’s market (not the market from 10 years ago). Break the price down into monthly mortgage payments—the money that actually will be subtracted from your bank account. Consider whether there’s a reason why the neighborhood should not be appreciating over the next 10 years. And—if at all possible—make sure yours is a 30-year fixed rate mortgage, so that the monthly payments that at first seem so high will become a bargain as time passes.

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DAVID DUNLAP

As a residential real estate executive with an extensive background in corporate marketing, I am able to apply unusually strong skills in marketing communications, e-marketing, strategic planning and ....

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