Are You Ready for Home Ownership?
For Immediate Release
April 30, 2012
- Are you sure you want to buy a home? Yes = 1 point.
- Do you anticipate any large expenses in the next two years, such as buying a car or having kids? No = 1 point.
- Do you expect to stay in your current job for the next two to three years? Yes = 1 point.
- Do you expect your job to stay in the same location for the next three to five years? Yes = 1 point. (Is your employer thinking of relocating? How do you know until you ask?)
- Do you know how much you can realistically afford to pay for housing? Yes = 1 point.
- Do you have a favorable credit record? Yes = 1 point.
- Do you have enough money for the down payment and closing costs? Yes = 1 point.
- Have you been pre-qualified for a mortgage so you know how much you can borrow? Yes = 1 point.
- Will your existing debt reduce your ability to qualify for a mortgage? No = 1 point.
- Is the amount you can borrow enough to enable you to buy a home you can truly enjoy? Yes = 1 point. (Don’t settle for something you don’t love, for you could well live in your home a very long time.)
If you scored 8 points or more, you’re ready to buy a home.
As I’ve said many times, The Rules of Money Have Changed, and this is perhaps more true in the area of home ownership than in any other aspect of personal finance. Therefore, be careful when seeking advice about buying a home, for asking the wrong people can cost you a ton of money.
For example, do not ask your parents for an opinion if the last time they bought a home was decades ago. The reason: The rules of yesterday do not apply today, meaning their advice could be 30 years out of date! Also, do not ask someone whose last experience buying a home was during the boom years. Lending standards have tightened, and many loan programs are no longer available.
Buying a home is difficult — perhaps even more so than ever before — and if you’re not careful, your dream of owning a home can become a nightmare. Indeed, it is very easy to become house-rich and cash-poor.
The biggest difference between owning a home generations ago and owning one today is that homes no longer are the key to financial success. Owning a home was once the fulfillment of the American dream: If you had a home, a pension, and Social Security, you were set for life. But that’s not true today. Still, owning a home does offer important benefits. To understand them, let’s consider the alternative, which is to rent.
Compared to renting, owning a home has many advantages, including:
- the homeowner’s monthly payment does not change, while renters face annual rent increases;
- a large portion of the homeowner’s monthly payment is tax-deductible, but rent payments are not;
- the homeowner’s monthly payments eventually stop (when the loan is paid off); renters pay rent as long as they live;
- homeowners keep a piece of each monthly payment, while renters never get back any of their rent payments;
- any increase in the home’s value belongs to the homeowner; renters keep none of that profit; and
- homeowners can design and decorate their homes virtually any way they want, while renters suffer major restrictions.
For all these reasons, owning a home is an appropriate goal for most Americans.