If you are a first time home buyer or a former home owner who has been out of the market for awhile you have probably been hearing that NOW IS THE TIME TO BUY-all caps, shouted from the rooftop by every source of information you can think of.
We would agree with the general statement that now is an excellent time to buy, however we would amend that to say, but is it an excellent time for YOU to buy? There is overwhelming enthusiasm about the issue. Everyone you meet says, "DO IT!"
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Let's think about that for a moment. In order to assist you making the decision-and it is a big decision - I'd like to go over a couple of points that you might want to ponder.
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No, sorry, wrong point. The following is what you should be thinking about if you are deciding to buy a house:
1) Job Stability- We interview many young people who are just out of school or have scored their first job. They are eager to purchase a new home and begin this new adult life. But one of the first items that a loan underwriter is going to review is, how likely is the applicant to remain at the current job, and does that job support a house payment? Many people believe that because they are paying rent, they will be approved for a mortgage at the same amount, or that the fact alone means that they have the income they need to purchase a home. A mortgage lender is in the business of giving mortgage loans to people that they are relatively sure will pay the money back. So when they look at employment, they are looking to see if the potential borrower has a stable job, has completed all probationary periods, receives enough income to cover the mortgage plus other consumer debt and does the job relate to what that person studied in school? This is where the person who is just out of high school and has not progressed to post high school education may be at a disadvantage depending on the type of employment. Lending allows "experience" to those who have obtained positions in their field of study in post high school education. So even if a borrower has a well paying job, if he or she has just graduated from high school the lender may require six months or a year on that job, whereas a person who just graduated in a two year degree program for a technical skill may be able to obtain mortgage financing after they have completed all probationary periods because their work is in their line of study.
2) Credit Depth- I have spoken at length of this before. One of the biggest hurdles that young people must overcome in their quest for a mortgage is developing a credit profile. Some people had forward looking parents who assisted them by co-signing loans or credit card applications when they were in school so there would be a credit footprint when they graduated. (My children can thank me-when I next see them.) However, not every child has that advantage or every parent thinks of this. Credit rules have changed significantly in a very short time. It used to be considered a good thing to be debt free, right? If a borrower wants to borrow money for a mortgage-they will need some credit history- a year is sufficient. It can be made up of a credit card, a car payment, and a student loan. Or two credit cards and an auto loan. Revolving credit, such as a VISA or Master Card carry the most weight. If you have no credit or have just opened accounts, you probably aren't quite ready.
3) Savings- can you show a pattern of savings? It can be a 401K from work, or a savings account. Lenders like to see that mortgage applicants have the ability to save money. While there are several loans available that do not require the borrower to have reserves, I always wonder what happens when the furnace quits. A loan won't necessarily be declined due to not having savings, but I think it is an important point to consider. Once a homeowner, the repairs fall on you. There will be no landlord. So if you have trouble saving money for any reason, think about how you will make repairs to the home you buy.
4) The cost of renting VS the cost of owning- Many people wish to buy because of the recent increase in rental costs. In a lot of cases they can find a nice home for a lower payment than what they are paying in rent. In addition when you pound a nail into the wall, it is your wall. In an earlier blog I cited that using this year's appreciation and projected interest rates a renter will break even on home ownership in three years. Not paying rent is a powerful incentive to buy if you are going to be in the same community for the foreseeable future.
5) Tax Benefits- Pure and simple you will save money on your income taxes by owning a home. A portion of the interest you pay on your mortgage will be deducted. In addition property taxes are normally deductible as well, plus any improvements you make to the energy efficiency of your home.
So you may be in a tax bracket in which owning a home would be an advantage on your taxes.
No one can make the decision for you. The decision is personal. A buyer has to be ready, able and willing to buy. The above points cover those three criteria. Many people are ready and willing but not able. Conversely some may be very able but not quite ready. Buying a home is a commitment. We never want to talk someone out of buying a home. Personally I think it is a terrific step to take. However, it is not for everyone at all times. Consider carefully and then decide if this is the right step for you.
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