Lansing, MI Mortgage

The Right 3 Questions for Home Buyers

by Evan Vanderwey on 09/10/09 at 8:00 am

I’m often asked, “Is now a good time for me to buy a home?”

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.