Understanding the System of Home Buying and Selling

By Lois Vitt

If you, like most Americans, realize that homeownership is likely to be your best investment, you should learn to use the "system" already in place to make your American Dream come true. This system, which is really an alliance of financial and government institutions, big and small business, and nonprofit organizations, educates you, sets interest rates, reduces red tape, and can save you taxes. The system is complex, but an understanding of it can help prevent costly housing mistakes and reap financial benefits.

It is never too early or too late to take advantage of the huge store of books on real estate and personal finance. Visit your library or favorite bookstore and select a few titles that will teach you the nuts and bolts of buying all types of dwellings. Choose from books for "dummies," first-time buyers, the upwardly mobile, pre-retirees and retirees, and housing investors. Learn how to avoid mistakes, protect your nest egg, buy, renovate, build, finance, and sell.

Remember that almost anything available in print is rivaled in the offerings of the Internet. That source also offers interactive web sites that allow you to browse available homes, calculate a mortgage, or find lenders. Find out how real estate professionals work, how they are paid, and the difference between agents and brokers. Enroll in local real estate education classes to develop at least a passing familiarity with the world of home buying and selling. There is a "system" in place to help you become real estate savvy.

When you are ready to buy your next home, chances are very good that you will need to borrow money. In that case, you will pay interest, the fee charged for using someone else's money. The "system" sets the interest rates. Today's adjustable rates make payments more affordable in the early stages of homeownership. Use books and web sites to sort out the difference between fixed-term, adjustable, and variable-rate mortgages. Before you commit to a mortgage, you will want to understand the interest rate and mortgage term as well as the intervals of your loan. There is much to learn about mortgages, and the "system" is prepared to help you learn it.

The "system" does more than set interest rates; it reduces red tape and saves you taxes. The processes of buying, selling and borrowing have been substantially streamlined over time. Credit reports and credit scores can now be obtained in seconds. Mortgage loan applications can be made via the Internet or telephone. With disclosure laws, professional ethics enforced within the real estate world, and stiff competition among mortgage lenders, every step is now made as easy and smooth as possible.

Once you own a home, you benefit from the "system's" offer of tax advantages, including the deductibility of your real estate taxes and mortgage interest and your ability to avoid tax on any exempted gain on your home when you sell it. The tax benefits and consequences of owning residential property should become a knowledge priority in your life.