Do you believe homes are not an investment? That seems to be the prevailing thinking in the personal finance blogosphere. Being a homeowner seems to be a bad thing to some authors.
After owning seven homes over the past three decade, my experience has shown it does make financial sense. Of course, you should follow some common sense guidelines.
Don’t Buy in Housing Bubbles
A lot of the negative feeling towards home ownership is a result of the housing industry meltdown. Too many people bought high and ended up losing enough equity that the mortgage is greater than the value of the property. In many cases by very large numbers.
It’s not a good idea to buy in a hot market where sellers get multiple offers in a day and buyers don’t even bother touring the property. Real estate is cyclical and things will turn around so even if you did pay too much, prices will go up eventually. Rent money never comes back.
Get a Fixed Rate Mortgage
During the real estate frenzy a co-worker told me an interest only loan wasn’t a bad deal. His reasoning was that the market would continue to go up and the borrower could sell the home and make money without paying a dime of principal.
I’ve always been a proponent of a fixed rate mortgage because you never know what will happen. Adjustable rate mortgages were very attractive until they adjusted to the point people could no longer afford their payments.
You may not get raises every year and the interest rate could be 5% higher in five years. Plan for the unexpected by keeping your mortgage payments constant with a fixed rate mortgage.
Plan to Stay
Buy Less than You Can Afford
It’s good to have some breathing room in your budget. If you’re approved for a $250,000 loan that doesn’t necessarily mean you should spend that amount!
Figure out your budget and what house payment comfortably leaves you able to meet all goals and save for the unexpected. Don’t forget to add in the costs of property taxes, maintenance and other new costs associated with the purchase.
When we sold our last home, the selling price was 10 times the purchase price. If we had paid rent for those 30 years , there would have nothing to show for the money. I do think buying a home is a good financial move…at the right time in your life.
Do you it makes sense financially to buy a home?
photo by Wonderlane