Impulse buys are seldom reasonable, but most are at least excusable. The World’s First Flying Tricycle, for example, has a multitude of practical uses. To impulsively buy a house, however, is neither reasonable nor excusable. Many folks dream of owning a home, so it’s understandable when they become exuberant over mortgage products that may—finally!—put that elusive dream within reach. But a home is not a flying tricycle. It is a serious financial commitment that should be purchased only after careful planning and preparation. But how do you know if you’re ready to purchase a home? Where do you start? What do you look for? That’s what today’s show is about.
There is no shortage of real estate agents and lenders who will push clients into homes and mortgage products they can’t afford. And, truth be told, there is no shortage of buyers who will delude themselves into thinking they can afford whatever they want, or whatever they’re being sold. Real estate agents work on commission, and many encourage their clients to buy as much house as they can afford—if not more. They understand there are creative financing options out there to get practically anyone into a home whether or not they can afford it. This is what ultimately caused the housing crisis of 2007.
This is why it’s imperative that any prospective homebuyer has the prudence to plan their housing budget in advance, and the discipline to stick with it. Before you even begin looking at homes, you should work out your budget and settle on a housing expensive figure that you can comfortably afford—remembering that the mortgage is only part of the expense. There are also property taxes, homeowners insurance, and perhaps even flood insurance and homeowners association dues. Once you figure out a comfortable monthly housing expense, you can determine your price range and begin shopping.
From here, the question becomes: What am I looking for? Oftentimes, when people dream of homeownership, they already have dream home in mind. Not to throw a wet blanket on your dreams, but…sssschlplop. (That’s the sound of a wet blanket.) If you’re a first-time homebuyer, your first house will not be the house of your dreams—unless your dream home is a 2-1 fixer-upper in an “up and coming neighborhood.” Then you’re in luck. Everyone else should adjust their dreams to be far more practical. Newlyweds don’t need a four-bed, three-bath McMansion. Empty-nesters don’t need a larger home with fewer rooms just because the kids are gone; more likely, they’re better off with a smaller home and fewer rooms. As with cars and clothes and televisions, you need to prioritize and realistically assess features: which ones you’ll actually use versus which ones you may use versus which ones you’d like to have but honestly won’t ever use.
On TV and the radio, you’ve no doubt heard news stories and advertisements about the red-hot state of the local real estate market. That’s mostly hype…mostly. Contrary to the news and advertisements, there is no need to act right now. Prices may appreciate between now and when you’re finally ready to purchase, but the appreciate won’t affect how much of a house you can buy enough to warrant making a hasty decision. Hesitating to purchase might cause disappointment if you miss out on a great house. But rushing to purchase can, and likely will, cause disappointment, regret, remorse, and a lot of financial trouble.
5-17-14 When and What? Buying a House