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Housing crash, mortgage crisis, credit crunch… it’s hard to read a newspaper these days without a flock of fearsome ‘c words’ jumping out to remind us of the problems plaguing us on a nationwide / global level.
One thing you won’t find, however, is the one thing the papers can’t report on. However smart the writers, they won’t know anything about the single most important factor in any financial decision you make – your own situation.
Markets might be struggling or booming; house prices might be rocketing or plummeting, but what really counts is what’s going on in your own life. After all, problems in the housing market might cost you 15% of your home’s value, but that won’t affect your finances anywhere near as much as losing your job, having a baby, or inheriting $50,000.
So, if you’re one of the many tenants teetering on the verge of buying a home, the most important question may be “Can I get a mortgage?”, but “Should I get a mortgage?” comes a close second – and both answers depend largely on your own situation. The macro-economics do matter, but not as much as your own ‘micro-economics’.
Let’s split your finances into the two simplest groups: income and expenditure.
Income
· How’s the job security – low, medium or excellent? Are you expecting your salary to go up, down or nowhere?
· Do you receive any state handouts? If you do, how reliable (and how significant) is this money? If you don’t, could you? Is anything about to change that could affect this one way or the other?
· Is there any money ‘in the pipeline’? Inheritances, insurance pay-outs, legal settlements, sale of assets…?
Expenditure
· How much do you spend? If you really cut it back, how long would it take to get that deposit together? If you already have a deposit, would a larger deposit help you get a better mortgage deal?
· Do you have debts? Could you pay them off any faster? Are you paying (e.g.) child support or alimony? How much longer will you be paying?
· Are you planning any major – and expensive – changes to your lifestyle? Getting married, for example, or starting a family? Some things can’t be delayed, but others can. Would it make sense to wait until you’ve bought the house?
They’re just examples, but these are the kind of factors that can really help you make your mind up. They’re not just more relevant to you as an individual – they’re probably more predictable than the macro-economic stuff you’ll find on the news. OK, you can’t know where you’ll stand 12 months from now, but your own future finances are probably a lot clearer than the world’s, the USA’s, or even your own state’s.
Finally, a look at the alternative
In closing, let’s take a quick look at a major factor that so often gets overlooked: the alternative.
Everyone worries about the possibility of losing money as house prices go down, and waiting years for that value to reappear. But unless you’re living with relatives, your rent is probably costing you thousands of dollars that you know you’ll never see again.
It’s true that waiting a year before you buy might bring the purchase price down by $15,000 – but if you’re spending $15,000 on rent, what’s the point?
11 Comments Received
July 16th, 2008 @1:52 am
Excellent, thanks.
July 16th, 2008 @5:25 am
There are pros and cons to both renting or buying. The deciding factor I try to use is that you may eventually pay-off a motgage and have that money for another use. Renting will never end.
July 16th, 2008 @8:28 am
Thank you for great information. My husband and I have owned several homes since the early ’80s. I would never rent again. Yes, in the beginning it might take a little money — money well spent. Real estate is by far better as an investment than other avenues of investment. We did lose money in the stock market and have always stayed in our homes long enough to have made a decent downpayment for the next home. We just purchased another and the next hopefully will be our last and much, much smaller!
July 16th, 2008 @3:41 pm
It is a tough question to answer in this market. The mortgage rates seem to be climbing and the lending standards are getting tigher and tougher. Everyone I am working with is going FHA and VA.
July 17th, 2008 @3:22 am
mortgage is needed especially if you are having a hard time of buying or owning a property but there are things to consider before making any decision.
July 19th, 2008 @10:03 am
With any investment it is alway important to do your homework and your home may end up being your biggest investment ever. Don’t rely just on the doom and gloom on tv and newspapers. It is important to remember that each local community has it’s own real estate market and all markets have ups and downs (some more than others). If possible buy on the downside of that particular real estate market and sell on the high side, but do your homework and don’t wait until the news tells you its a good time to buy or it might be too late. A good measure of each local real estate market is the HPI which can be found at http://www.ofheo.gov/hpi.aspx
If HPI increases at least 3% per year in a particular area then you would want to buy a home if you plan on living in the area at least 2 years or more because that is when most people will start accruing equity in your home. With any investment there is always risk, but real estate is usually the best investment in the long run. Don’t buy if you plan on moving in less than 2 years, but more than 2 years definitely consider buying a home……
July 21st, 2008 @9:14 am
It will be interesting to see that state of the mortgage industry in a few years. I wonder who survives?
July 22nd, 2008 @9:44 pm
It’s hard to time the market. You do have some interest write-offs, but then again a lot of repairs, all things to consider, and for sure don’t get an ARM that will adjust before you leave.
July 25th, 2008 @12:47 pm
What’s the point of waiting a year for the house price to drop $15,000?
Paying an extra $15,000 on the mortgage over 20 or 25 years - thats about $90 per month extra over 20 years which adds up to repaying $23,000 +.
July 26th, 2008 @1:44 pm
Well prices are down now, and it’s a smart time to get a mortgage. But the thing is that the people who get mortgage are the middle class people. And now the middle class people or most of the Americans are suffering from rise of prices, there enough is barely enough. So yes the time is right, but there is no cash.
August 5th, 2008 @11:24 am
Awesome post. The information you laid out makes sense. I was considering renting before, but this started to make me consider just flat out buying, but it depends I guess on my ultimate need.
If I need something more available for just leaving, I don’t think buying would be a good idea, especially if it ends up in short term on 2 year runs? Or would that open the opportunity for me to rent out that location while jumping into another?
Might have to consider this further, lol.
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