The answer is never straightforward, but the questions you need to ask yourself usually are…

1.  Does the market price of homes that meet our needs fit into our budget for a house payment?

This one is simple.  If your needs are for a home with 4 bedrooms, and your kids are of school age, can you find a home that will meet your needs for a payment that you can afford?  Often times I see families stretching to get into a home that will meet their needs for a decade or more.  This can be a good idea but also has the potential of putting unnecessary strain on the budget and often the relationship.  Compare this with the strain of living in a home that is inadequate, and a balance ought to be sought.  How much are we willing to give up (out to eat, entertainment – dare I say cable television?) in order to make the jump to adequate housing?  Remember that over time, depending on your situation, your income will likely rise and your house payment should remain roughly the same.

2.  How long do we plan to be in this area and in this home?

This answer is key.  If you are buying a home that you’re able to live in for ten years or longer, then you may be able to afford to buy a little more home right now than you might have otherwise justified.  Time can cure a temporary budget strain as you pay down the mortgage and seek to keep other expenses under control.  A timely purchase while homes are at a very good historic price can pay dividends down the road.  Remember to take into consideration your future income desires.  I have a client who purchased a very nice home right after she was married and then after a few years, she wanted to stay home when they found out they were expecting their first child.  This was not something they planned on and are now finding themselves in a situation that is difficult to change midstream.  Some decisions will invariably make future decisions for you – spend some time thinking this through ahead of time.

3.  What does the rest of our financial picture look like right now?

With good planning up front, the above two questions become less of an issue.  For the past ten years or so I have taught a simple cash-flow plan that is helpful in informing the home-buying decision.  The first priority of any household savings plan should be to have  an emergency fund–$1000 to $2000 in a savings account for a rainy day.  A furnace or a new transmission, or brakes or a week off work for an unexpeced trip to see family or friends in need will not cost much more than this.  Plan for the unexpected first.  Second, pay off all consumer debt.  Consider a plan to pay off credit cards AND auto loans if you have them before buying a home.  Any household that has credit cards with balances and car loans has monthly payments required that will compete with making a housepayment or saving.  This will add stress to your life that could be avoided.  Pay off the debt once and for all, and then begin saving more money and look for a home.  After you’ve eliminated your credit card balances and auto loans, increase your savings.  It’s not a bad idea for you to have 6 to 12 months worth of living expenses in an account that you can access in time of need.  Remember that when you buy a home you are signing a mortgage that commits you to make payments regardless of what happens to you.  Excuses later because you lost your job are just that.  Just because the lender says you CAN, does not mean you SHOULD.  The last few years have taught us that, if nothing else.  Fourth, invest.  Open a ROTH IRA, put extra money away for retirement, college for kids, other investing, or just a larger cash balance.  Success, they say, is where opportunity meets preparedness.  If you had a large sum of money in your savings account today you would have the ability to make investments that are very lucrative right now.  Prepare for it.

A great deal at the wrong time is a bad deal for you.  So, ask the right questions and make sure you’re building your personal financial plan in a way that will last.  This is a bed that you will definitely be sleeping in for a long time; let’s make sure we’re approaching this home purchase question with a long-term view.

Article excerpt:

Senator Isakson believes lawmakers will eventually move to extend the credit in one form or another. “I don’t believe either this administration or the current leadership would look November 30 in the eye and let this thing die,” he says. White House spokesman Robert Gibbs said this week that the administration is evaluating the credit’s impact and will make a recommendation to the president, the Associated Press reported. The outlook for an extension appears to have brightened. Scott Talbott, a top lobbyist at the Financial Services Roundtable, put the odds of its extension at 50-50 earlier this week, but he said that the chances improved to 75-25 after Reid endorsed the six-month extension.

-Read the entire article here-

My two cents:

I am among what I hope is a growing number of people involved in the Real Estate Industry who are NOT in favor of the credit and “free money for some.”  The reality is that $8000 given to a relative few will cost all of us much more than the estimated $100 billion it will end up having cost the US Government when this is all said and done.

Thinking logically:

1.  The free market sets prices of homes.

2.  The government gives $8000 to some people who buy some homes.

3.  This has increased sales demand.

4.  Any increase in demand, while it exists, will always increase prices (or slow price declines).

5.  Next, the goverment does one of two things:

a)  Ends the credit at some point.  This will cause all housing values to drop by around $8000 more than they already are (even for those who just paid $8000 more for their home to get the credit). Or,

b)  Continues to give credits to some people who buy homes – forever.  This would be the only way to make sure that prices don’t adjust back to their former price; but then it would soon become “normal” and would no longer stimulate future home sales.

I think that (a.) will be their choice (at some point).

When the article says that they will be “evaluating the credit’s impact” they must be ignoring the greater impact of the total cost of the credit in their evaluation.  The cost is greater than just paying back the money.  The higher cost is the cost of entitling people.

Entitlement is something we’ve all felt already with respect to the credit already. After all, we think to ourselves:  “they can’t take that away now?!”.

The cost of entitlement is devastating and should be avoided at every turn.  Lets get it out of our thinking, out of our politicking, and out of our conversations with each other.  It will kill our ability to think clearly.

The Facts are these:

1.  Mid-Michigan is a great place to live and work.

2.  Home prices around here are making it very easy and attractive to own a home.

3.  There is a lot of expansion in the business, insurance, technology and education sectors that says we will be a growing region.

Whether or not the credit is extended, buying a home in Lansing right now is a very good idea for most people who are thinking about doing it.

Here’s just a sample of the latest:

• Single-housing starts for August are up 7% and it looks like they’ll post the first double-digit annualized gain after 13 straight double-digit declines, that’s quite a swing.

• Market home prices are up nationwide, somewhere between 2.7% and 7.3%, depending on whose numbers you trust (Freddie on the low side, Clear Capital on the high).

• The nearly record low rates last week boosted mortgage apps up by 17%.

• We’re enjoying 6 straight months of pending sales increases.  In Lansing, we’ve already closed as many transactions as we did all of last year.

• Consumer confidence ratings are up—and in all categories: current conditions and short-term outlook in both the economy and labor markets.

So the indicators that we’ve been watching so intently, so nervously over the past two years seem to be settling in to a healthy rhythm. And that’s good.

And though we may never be as complacent as we were a few years ago, that’s probably good too. In fact, maybe those were the dark days—when we thought nothing could go wrong…maybe. Either way, I’m ready for some sunshine.

I thought about these things when I got an email this week describing a sales technique banks are using with potential mortgage clients. In a nutshell, they’re arguing that if you originate your loan with a broker, there’s a very good chance you’ll have your closing delayed due to the re-disclosure provisions of Reg Z; whereas a bank, unhindered by such nuisances, can get you to closing quicker. Therefore—by this logic—banks are the better bet.

hmmm…This is clearly folly. So do I answer it? Or do I let it go?

At the risk of “being like him myself” and just adding to the noise, I’m going to answer it because there’s more to this than an argument between banker and broker. There’s also the client whom these rules are meant to protect.

As I pondered how to respond, my first thought was—naturally—defensive. After all, I’m a broker, and them are fightin words. But then I thought, hang on. Rather than turn this into a mud fight, this might actually be an open door for re-emphasizing how a good broker is still your client’s best option.

Let’s start with Reg Z. The re-disclosure piece to TIL (truth in lending) was intended to prevent the bait and switch. You know how it works. A client is informed early in the process about the rate and certain fees (the bait), but when she sits down at the closing table, lo and behold, they’ve changed, gotten bigger, multiplied even (the switch). Most people don’t walk away from the table at this point, and that’s why the practice has been so lucrative.

A couple of observations…

1.  The law was meant to protect consumers from a dishonest practice. So why originate a loan with someone exempt from it? The incentive to be as truthful as possible as early as possible on disclosure of all the costs involved lies not with the bank LO who’s exempt from this part of Reg Z, but on the broker whose livelihood depends on compliance with it. Your client has a stronger basis for trust with the one who has the stronger incentive for full disclosure.

2.  Brokers who used such practices were also those likely to push b-grade paper, and those guys are gone. If your broker has survived the shake-out of the industry, then you’re most likely dealing with someone who’s been doing things right and above-board. Banks haven’t experienced the same “refining” effect of the housing crisis that mortgage brokers have. And if such brokers have survived, there’s a good chance that they’re doing it as bank LOs.

A couple of strong arguments aside from Reg Z considerations…

1.  Speaking of survival, you might not realize just what keeping the doors open has entailed for me—and brokers like me—over the past few years. Those still standing went through something like this:

• 3 hour state-administered test on everything from calculating APR to TIL to past laws pertaining to the mortgage-lending industry
• An audit of accounting books, procedures, financial position, and a random audit of ALL files (closed and withdrawn) from the past 36 months
• A net worth requirement at all times of $70,000 liquid cash in a bank

…and no bank LO can say any of that. Don’t hear me wrong. There are good, conscientious loan officers working out of banks, but they simply haven’t proven their professional commitment to the industry in the same concrete, measurable ways.

2.  And this may get to the heart of the matter better than anything else–By definition a broker provides flexibility that a bank LO just can’t. When my client is declined a loan from Lender A, I find out why, look for a remedy, help my client make adjustments, and then move on to Lender B. And I can do the same for Lenders C,D,E,F,G,H…you get the idea. But a NO from the bank is a NO to that client. No loan, no mortgage, no house, not from us anyway.

I hope that you can hear in this, and in all of my letters and blog posts and emails, that this is not just a “job” for me. It has been and continues to be a crucial part of my life’s purpose. Bringing excellent advice, service and rates to the mortgage industry—as low as it has stooped in the past—is what I do. And I’m not going anywhere.

I’m no Solomon, but I do know the mortgage lending business. And while banks are promoting their Reg Z exemption as an advantage and calling it wisdom, a closer look shows such thinking for the folly that it really is.

Does that mean you should dump your home and rent? Not at all. In fact, if you’re renting now, this may be just the right time to cross over into home ownership.

Some things to consider:

1. Affordability. Prices are very low, but there’s good evidence out there that we’ve seen the bottom and are now starting back up. We may spend some time at this level, we may not, but it’s not likely that we’ll go any lower.

1. Rates have hit an all-time low in the past week. Again, we may be here (or very near it) for months. We may not. But no one’s expecting rates to go much lower.

1. Tax credits. Included in Obama’s stimulus plan is an $8,000 tax credit for first-time homebuyers. This is a credit, not a deduction like mortgage interest, so it represents real tax savings. The program is scheduled to end Dec. 1 of this year, and while it’s likely to be extended, there’s no guarantee of it.

1. Reality. You’re less likely to believe that buying home is an air-tight investment, and more likely to see it for what it is—a chance to own the house you live in, make it your own, grow deep roots, and then look forward (15 years? 30 years?) down the road to no more payments.

So while conventional wisdom may be going through a revision, there’s still plenty of good wisdom out there today that says home ownership is a good thing.