Buying a Home: Blessing or Burden

The home purchase decision is probably one of the most significant financial decisions a person will ever make. We must consider carefully if home ownership is within God’s timetable and will for us. We must face the following realities before making this decision.

Owning a home may be the American dream, and is a privilege and a blessing, but is not always a prudent financial choice. Many young married couples have an expectation to be in their own home with new furniture and appliances within the first year of marriage, when it took their parents 10 to 20 years to achieve that place.

Interest rates are at record lows, we have just finished the biggest housing bust in modern history, and home prices are down 30% – 50% or more. However, considering home ownership should come with sober evaluation. Here are some steps for your consideration:

Find out how much home you can afford
Before you do anything else, find out how much home you can consider. Look online for a quality mortgage calculator (Zillow.com has as great one) to show you how much mortgage you can afford based on your income, interest rate and length of the loan. The rule of thumb is that you should consider a house priced at about two-and-one-half times your annual salary.

Shore up your credit
Since you will most likely need a mortgage to buy a property, make sure your credit history is as clean as possible. A few months before you start shopping, get copies of your credit report. Make sure the facts are correct and fix any problems you discover.

Get preapproved
Take the time to get pre-approved before you begin looking at property. Many real estate agents won’t work with you until you do. This can be accomplished through a mortgage broker or directly with a bank or lender.

Don’t buy if you can’t stay put
If you can’t commit to remaining in one place for at least a few years, then owning is probably not for you. The transaction costs of buying and selling a home are high and, even in a rising market, can overtake any profit. When prices are falling, or when you are pressed to sell fast, losses can increase. It may make sense to rent for a season. The rule of thumb is that if you pay 35% less in rent than you would for owning (including mortgage, taxes and homeowners fees) then it is smarter to continue renting.

Get professional help
Even though the internet gives buyers unprecedented access to property pricing, most buyers are better off using a professional agent. Look for an agent who will have your interests at heart and can help you with strategies and negotiations.

Remember that a home is not an investment – it’s your home
An investment is something you make because you expect it to generate income, or growth in value, so you can sell it for a profit. Owning rental real estate can create income, while owning your primary residence does not. You should not buy a home with presumption of appreciation. The average appreciation of real estate historically is the same rate as inflation, and many “investors” have been devastated by speculating on hoped for quick profits in real estate.

Purchasing a home will require financial sacrifices in many other areas of the budget. The unknown costs for repairs, taxes, insurance, appliances and furniture have to come from somewhere. Make sure it is God’s timing for you to take that step. Proverbs 24:27 reminds us to: “Prepare your outside work, make it fit for yourself in the fields; and afterward build your house.” First establish your business, your position at work and your marriage, and then get your home!

Choose financing wisely
In evaluating what type of mortgage to get, you will be better off to use a fixed rate mortgage rather than an adjustable one. Generally the number of years you finance your home depends on your budget. But don’t stretch your budget to the max! Consider buying with the intent to keep your mortgage below the rent you currently are paying. Instead of buying the “McMansion,” buy something under your budget. In 1950, the average home size was 983 square feet; at the height of the building boom, the average home size was 2,340 square feet!

Finally, get God’s confirmation on all the details of a home purchase. God uses other people, circumstances, events and directs us through his word and in prayer. Colossians 3:15 says: “Let the peace of God rule in your hearts to which also you were called in one body, and be thankful.” Make sure you experience the peace of God ruling in your heart as you make this and all of life’s decisions.

Jeffery Masters, President of Jeffery W. Masters & Associates
Securities offered through LPL Financial, member FINRA/SIPC
Investment Advise offered through Independent Financial Partners,
a Registered Investment Advisor. Independent Financial Partners and Jeffery W. Masters
& Associates are not affiliated with LPL Financial.
Jeff is a Locally Endorsed Investment Advisor by Dave Ramsey. Email Jeff at: [email protected]

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