First time home buyer - to buy or not to buy
Attracted by the low interest rates and the falling house prices, many of us, especially young couples, are rushing out there hunting for our dream house.
First time home buyers may see a gold opportunity in buying a house these days and it may even look like a wise investment for Their money. But is this true? Is this really what they want? May this be just another illusion?
I have never been an expert on the subject but after my husband and me bought our house, three years ago, I started reading and learning. If you would have asked me then, I would have said yes, go ahead and,get a loan and buy a house. But today my answer is: wait a minute first time home buyers! Consider this:
1. Unless you pay cash, your are not an owner till your last mortgage payment is made, maybe 30 years from now.
2. Your house is not a saving account. Your house is a home and does not make money for you.
3. Besides the monthly mortgage, you have to pay your own utility bills. Water, energy, property taxes, insurance, repairs.
4. And think about all the interest you have to pay to the bank almost half of your life time.
And the list doesn’t stop here
Before deciding to buy a house, here are same question a first time home buyer may want to answer.
How much can you afford to spend for a place to live?
As a general rule, you shouldn’t spend more then 30% of your monthly income on mortgage. This is about the percentage that lenders use to calculate your loan. A 30% ratio is giving you comfort level and room for unexpected expenses. Anything more then that will throw you in a narrow path and put at risk some other plans you may have for your money.
The answer at this question is going to be relevant for the location and the size of your house. Good neighborhood versus bad - big house versus small.
How many years would you be willing to pay for the loan?
To get a low monthly mortgage you will need to extend the payment for 20, 25 or even 35 years. If you are in your 20s, a thirty years of monthly payment may not seem bad but if you are in mid 30s, that means you may still work to pay your house at 65.
What other financial priorities do you have?
Do you need to pay for the collage? Or build a retirement plan? Do you have any medical expenses? What about the trip in Europe you always wanted to take? While is good to come home, every day, to your own home, this daily trip may delay your other plans, like pursuing a career that may ask for relocation, or having a baby.
Could the house prices go even lower?
Has been estimated that, over the last 2 years, the prices dropped on a median of 30 percent around the US. The market specialists predict an even greater drop in few years. While the houses already on the market will continue to depreciate, the home builders will continue to build new houses that they need to sell for a competitive price. What if, waiting 5 more years, would bring your dream house within the easy rich of your monthly income. If you are really serious about buying a house, few years is all you need to make up to a big down payment that will save you a lot of money in the future.
Is your income secure?
Are you still going to have a job, one or three or five years from now?
If you aren’t sure, what’s your back up plan to avoid penalties or worse?
This is a very difficult point (without being pessimistic).
If you decide not to buy then what are your options?
Renting, sharing, moving with your parents or siblings?
Maybe your sister has an extra bedroom in exchange for twice a week babysitting. What a bout your mom and dad? Would they be willing to let you in for some time, collecting a small rent from you?
Maybe my question do not apply to you because you already saved enough to buy a house in cash and now you are just waiting for the right price. Or maybe your business is doing very well and you think that is time to do something with the extra income you make.
Or maybe you have nothing else but the desire to send your kids to a better school or providing them with a safe neighborhood.
Or perhaps you just need a pertinent opinion to help you make the right choice.
I don’t think there is a simple answer. But here is a book that may guide you through the process and find some solutions you would not expect:
David Crook, Complete home owner’s guidebook
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