Whether you should buy a home is mainly a matter of timing, in terms of both the market and individual circumstances. Lois A. Vitt, a housing expert and financial sociologist, walks you through some of the things you need to ask yourself, and take stock of, in the following article from Housing Predictor.
You’ve decided to move. Now you face the bigger decision: Is it time to take the plunge into home ownership or continue to rent? Or, should you give up the home you own and return to renting?
If you have never been a homeowner, home ownership should definitely be your goal. The American Dream aside, investment in real estate makes sense for nearly everyone at some point. But timing is crucial. Buying a home because it seems like a good idea right now could be a mistake if the time is not right for you. Accurately and objectively, take stock of your financial situation, including your savings plan. Determine how much “home” you can afford and meet with a lender to get a sense of the mortgage you can comfortably handle. Ownership can also include unforeseen expenses: damage needing repairs, rising utility costs and taxes, and life changes that require longer commutes to workplaces and schools. Remember too, that housing choices are more than financial, so you are only halfway to making a good decision.
Look objectively at your personal situation. Is there any instability in your life—concern about your job or career, a troubled love relationship, anxiety or friction in any area? If so, now is not the best time to commit to home ownership. A new home does not repair relationships or soothe anxieties. More often than not it increases the emotional and financial upheaval than exists to begin with. Likewise, an uncertain workplace can spawn regret and financial hardship instead of pride and pleasure in a home you’ve worked hard to buy.
The next step is to realize that whether you are just starting out, raising a family, changing jobs, or downsizing for retirement, your choice of where and how to live is a confluence of many concerns. While your budget is a significant deciding factor, feeling “at home” reflects and impacts your identity, autonomy, and the needs and desires of loved ones who will be moving with you. Whether home is the center of your life or a place simply to hang your hat depends upon your comfort levels, social attachments, and other intangible factors about where and how you choose to live.
Buy or Rent?
If you are a renter but have been longing for a home of your own, that “someday” could be now. Housing is “on sale” in many—if not most—markets. Prices are down, interest rates are low, and tax incentives may work in your favor. So line up your paperwork and find an effective real estate team. Deal with a real estate agent who knows and works well with lenders. Or consider buying a new home, since homebuilders can often help with a pre-arranged mortgage if you qualify. Buying a home involves understanding where you are on your financial road map. To answer that question, carefully analyze your financial situation. Finances can’t be taken lightly. You don’t want to end up like millions of others these days with a foreclosure on your hands.
Create a side-by-side comparison of the costs of buying vs. renting, starting with your current housing expenses. Capture all the associated expenses and tax benefits, list actual and projected costs. Then crunch the numbers, making sure you have something left over to meet any unexpected expenses. You’ll be more comfortable with your housing decision if you make the buying process consciously and deal gently but firmly with the emotions or rationalizations that can get in the way.
Are you a renter? Be creative. The unsold inventory of available housing includes some desirable rental opportunities. You can even trade up to a better location at a reasonable cost. Imagine gazing at a sunset on a lake from the balcony of a condo you could never afford to buy. Renting to achieve more modest living can also be a win-win situation. It can buy you peace of mind and freedom from market worries and personal financial uncertainty while you build confidence for the future.
Consider the story that Carolyn and her husband shared with me:
“My husband and I were both self-employed homeowners when the revenues from our respective businesses dried up almost entirely during 2008. We decided to sell even at a steep loss, use the proceeds for living expenses, and rent a house until things get better. We are saving over $1,000 a month in expenses by renting, and as our work picks up and the time is right, we’ll be able to buy a new home if we choose. Meanwhile, we are enjoying our worry-free housing and concentrating on growing our businesses instead.”
If, like Carolyn and her husband, your financial analysis strongly suggests that you should rent, then set that as your goal, and despite any misgivings, shop for a great rental. Even if you must leave a home you love, the sacrifice can prove to be wise and worthwhile.
Your best move, whether you choose to buy or rent, will require taking into consideration the emotional and housing needs of your partner, children, pets and yourself. You’ll need to think through your financial considerations and then map out the right steps. It is important, for instance, that you plan to accumulate some savings while you are renting, even if it’s only a small amount. Keep watching the housing market as well. Make decisions about the living arrangement you want in the short-and longer term, and set these goals to work toward. Modify your housing plans realistically through the years, and live up to them. Anchor your retirement planning with the home of your dreams and save regularly to help make it come true.
Lois A. Vitt is a housing expert and financial sociologist, and is the author of “10 Secrets to Successful Home Buying and Selling”, the first book to demystify the psychological forces behind our housing decisions. To learn more about Lois and this book, visit www.RealtyStudies.com.
This article has been republished from Housing Predictor. You can also view this article at Housing Predictor, a real estate analysis and forecasting site.