For many New Yorkers, homeownership continues to be the essence of the “American Dream.” But sometimes, it’s not clear to the average buyer. Today’s homebuyer has an array of options to consider with financing their home. The right down payment? The best mortgage that meets your needs. And the long list goes on.

In this article, Katie Severance addresses these questions and more. As a tri-state area realtor, she’s successfully closed more than $200 million in real estate transactions and has authored The Brilliant Home Buyer: 101 Tips for Buying a Home in the New Economy. She’ll share some savvy tips on long-term smart homeownership and the dependable road to personal wealth. 

What are the most significant real estate changes in the “new economy over the last five years?
First is the far greater inventory and information available on the Internet than ever before. Second, the new Know Before You Owe lending laws make it so much easier for consumers to comparison shop for a loan and understand fees.

Factors such as more complex and specialized inspections than we have had before and climate change affect the location, home materials, home systems, and homeowner’s insurance. Don’t overlook buyer competition. There are more savvy buyers than ever competing with you. So being educated about how to find and negotiate the right home has never been more critical.

Why is owning a home long term the best path to personal wealth for most people?
A buyer only needs to spend 20 percent (or less) to own a significant asset—one that will appreciate over the long term. It is unlike a car or boat, both of which will depreciate the minute you buy them. Stocks and commodities are typically purchased at 100 percent of their value. A home is an asset that you can live in, so it has two purposes.

Homeownership is a hedge against inflation; it comes with multiple tax deductions and the stability of fixed payments vs. annual rent increases. According to the Federal Reserve (2019), homeowners have 40 times the net worth of renters—and that gap is widening. Values come down in cycles, but they never stay down—they have always come back higher.

How can you know when to buy?
The first step is to establish if the market is going up or down. If home prices are going up each month, you need to act faster because you will pay more next month than this month for the same home. If mortgage interest rates are going up, you need to work even more quickly still. For every 1 percent increase in mortgage interest rates, a buyer loses 10 percent buying power. Figure a mortgage approval for a $500K home now only buys a $450K home.

How can you read the market and make a brilliant buy?
The first step is to stop looking online. Physically walk through as many homes on the market as possible. Know all the inventory and the condition. Next, track them all and analyze them (with the help of a real estate agent) and see how long they took to sell (Days on Market—or DOM—are on every listing) and what the final sale price was relative to the asking price. A pattern will emerge and be clear to you regarding value in the area. There will always be an unusually high or meager sales price here and there that even the realtors can’t explain. Forget them. Focus on the pattern.

When you know the market, you will not only avoid overpaying, but you won’t waste time on unsuccessful negotiations with unrealistic sellers. Knowing when to walk away from a dead-end negotiation is powerful. To do that is learn how to analyze, see the inventory and neighborhood values inside and out.

What is your favorite money-making real estate tip?
This tip is a big money-maker. With the right property, it can make you hundreds of thousands of dollars in profit over time. Purchasing a two- or three-family home and living in one unit for a year or two, or even more. By “owner-occupying” for some time, you’re allowed to put less of a deposit down than if you just bought it as a straight investment property; plus, the other renter is paying most of your monthly mortgage payment. It keeps your living expenses extremely low and allows you to save enough money for a down payment on a single-family home for yourself—and keep the multi-family home as an asset that produces great annual passive income for years to come.

What are a few key first-time homebuyer mistakes to avoid?
The biggest mistake to avoid is picking the wrong city, town, or community. Owning a home in a town that you later learn does not suit you can be debilitating. Selling and moving is an expensive mistake to correct. It is also physically and emotionally disruptive to your life. The need to thoroughly research a town, its people, and its culture cannot be understated.

Making an offer before you know the market well should be avoided. This is how buyers end up overpaying and not getting the big profit down the road associated with smart homeownership. In the worst case, it can lead to owing more on the home than it is worth. That is a quick sale. And that can also lead to personal bankruptcy.

Not understanding how to negotiate well. There is an art to negotiating, and while it is simple, it is difficult—because it requires doing a bit of homework and having the fortitude to walk away.

A new kitchen is seductive. I know! But you can re-create a great kitchen anywhere. Don’t be captivated by someone else’s upgrade—because you are probably paying a premium for it. Buy a home in the right location and get the best price, and then use the savings to renovate the kitchen your way.

Not performing a thorough inspection. This is obviously how a buyer ends up with a money pit—or a home subject to climate change or other environmental hazards.

Picking the wrong loan product. The type of loan you choose has a significant impact on the monthly payment for the next 15-30 years. It’s something you want to get right from the outset. Otherwise, you’ll find yourself re-financing the loan at some later date to get the best deal—one that you may have missed the first time around.