If you are considering buying, you can’t help but be influenced by what was called the 2001-2006 housing bubble and its 2007-2010 collapse. Wikipedia says,
“Observers and analysts have attributed the crisis to everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan. Other factors named include mortgage underwriters, investment banks, rating agencies, investors, low mortgage interest rates, low short-term interest rates, relaxed standards for mortgage loans, and irrational exuberance. Politicians in both the Democratic and Republican political parties were cited for ‘pushing to keep derivatives unregulated’ and ‘with rare exceptions’ giving Fannie Mae and Freddie Mac ‘unwavering support.’”
Another contributing factor was the American Dream, whose roots go back to the Declaration of Independence. In 1931, James Truslow gave us a definition of the American Dream, “Life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement regardless of social class or circumstances of birth.” President Roosevelt has the distinction of actually including home ownership in the American Dream. President Truman built upon the idea after World War II with the creation of the GI Bill. Bush and Clinton continued the support, and the ball was rolling.
But, homeownership is not for everyone.
Renting vs. Owning – What’s Right for You?
You may be happy renting right where you are.
- Renting is simple – You find a place you like and is convenient, sign a lease, and move in.
- Renting is carefree – You don’t have to deal with upkeep, repairs, utilities, or property taxes.
- Renting means freedom – You’re not tied down; your time is your own.
Or, you may be thinking, “We’re wasting money on rent. It’s time to enjoy homeowner benefits.”
- Owning helps you build wealth – Every time you make your mortgage payment you build equity in your home and increase your net worth.
- Owning comes with tax advantages – Deducting mortgage loan interest and property taxes when you file income tax can be huge savings, especially in the early years of your mortgage.
Is this the right time?
Do you see yourself moving in the next couple of years? If you do, then it might not be the best option; most people lose money when buying and then quickly reselling.
How’s your credit score? Your credit score may make a difference in the type of loan for which you can qualify. A lower credit score may not keep you from qualifying for a loan, but it can mean your interest rate is higher on the loan. If you’d like to raise your credit score, now is the time to consult with a professional credit repair service to get their advice. Your Realtor® should be able to connect you with a reputable credit repair service.
Do you have money for a down payment? The more you can put down the less you will have to borrow. If you can put down 20 percent, you will avoid the expense of Private Mortgage Insurance (PMI), but there are many loans available where you only have to put down 3 or 3.5 percent. With veteran’s benefits, you may not have to have a down payment at all. There are also loans available today that allow you to receive part of your down payment as a gift.
Don’t forget about closing costs. Closing costs vary, and it is important to understand that you will probably have a loan origination fee, may have PMI, and will need to pay for a full year’s homeowner’s insurance in advance at closing. But the good news on closing costs is that it is very common today for the seller to help the buyer with closing costs, allowing the buyer to keep more money in their pocket.
Talk with Family and Friends
Talk to family or friends that are homeowners. Ask how they like it and if they have any regrets. They may have great advice, but you also need to consider what might motivate someone to make certain comments. Comments may be made from a personal frame of reference. If you are young, a parent might be negative just because they were not ready to be a homeowner when they were your age. Someone may have had an unpleasant experience that was unique to their situation and has nothing to do with you, and therefore be negative. Sometimes comments could be made from a place of jealousy when individual wishes they were in your position. Consider all comments objectively and if you feel you are ready, take the next step and talk to a lender if you are not making a cash purchase. A loan professional will be able to give you a clear picture of where you are financially in your process.
The opinions expressed in these articles are not necessarily those of Executive Life Magazine or the ACA Business Club. Answers are general in nature and do not apply to actual transactions.
1 Wikipedia – Causes of the United States Housing Bubble – https://en.wikipedia.org/wiki/Causes_of_the_United_States_housing_bubble