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Do Not Buy A House Before You Are Ready And Able.

The following is a guest post from Trees Full of Money.

Don’t buy into the hype that if you are renting you are “throwing money away”. When making a decision to buy a new property, make sure that you are truly ready.

With the run up in home prices over the last 7 years, many Americans have begun accepting that the quick road to building wealth is to buy a home. Indeed, there were many folks who bought and sold homes for a tidy profit over this period, but the national rise in foreclosures over the last year is telling a different story. If you are thinking of buying a home in the near future, I suggest you ask yourself the following questions.

Do You Plan to Own for at Least 3 Years

With home prices in most areas of the country in decline, the longer you plan to own the home, the less likely you are to lose money when it comes time to sell. If there is a good chance that you will need to relocate in less than 3 years, you would be well advised to consider renting.

Do You Have an Emergency Fund

Many banks require borrowers to not only have a decent down payment on a new home loan, but also have additional funds set aside in an emergency fund. These funds are essential for any temporary job loss, or other unexpected financial emergency to carry you through. 3-6 months of expenses set aside in a savings account is strongly recommended.

Can You “Afford” the Payment

What you can “afford” and what you can comfortably pay are two completely different things. Even with the tightening down of lending standards by banks across the country, many financial institutions will still approve you for a loan payment near half of your monthly take home pay. If you plan on having a life outside of your house, you’re better off saving your money and renting until you have enough of a downpayment to get your monthly mortgage payment near 25% of your take home pay on no more than a 30 year fixed rate loan. It is also a good plan to pay off as much of your consumer debt as possible such as car notes, credit cards, and student loans. The less debt you have hanging over your head when you move into your new abode, the more enjoyable it will be.

Don’t Forget Taxes, Maintenance, and Insurance

People sometimes justify their desire for a new house by claiming they can buy a house for the same price that they are currently paying in rent. This may be true, but often times they are not taking into account the extra expenses that home ownership entails. Taxes alone easily add another 20 percent to your monthly housing payment. Insurance premiums vary but they range from $450-$2500 or more a year based on the geographic location of the property (for a median priced home). Another large expense that is often neglected is the cost of maintenance. Many financial planners figure in a yearly maintenance cost for their clients of 1% of the homes value (more if the house is older) for repairs, cleaning, and lawn care. You can go several years without spending a dime on repairs and then need to shingle the roof, and replace a water heater in the same month.

Are You Familiar with the Area

The following is a guest post from Trees Full of Money.

One of the complaints that I have heard from friends who have recently bought homes is that they wish that they had bought homes in a different neighborhood. When considering a home purchase consider it’s proximity to your place of work and shopping areas, school district, and the overall upkeep of similar homes in the area. Renting in a new town allows you to essentially test drive a neighborhood before you buy into it. You may find that you favor another area in the town better.

The idea here is to look at the big picture before jumping on a new home purchase. Be sure to take into consideration all of the variables above when making a decision to buy. Many analyst are predicting a further slide in home prices; not only will you be in a better financial situation a year or two from now if delay your purchase, but more than likely, home prices will be the same or even lower than they are now.

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  1. [...] Two Dollars, for instance, has a very good post about why people should wait to buy a house until they can really afford to AND actually need a [...]

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