Do you think you want or need your house to be an investment in your retirement plan? Americans are used to their homes being a store for wealth to liquidate in retirement and downsizing their lifestyle. In 2015, Gallop reported that, for the second straight year, more Americans named real estate than stocks, gold, savings accounts/ CDs, or bonds as the best long-term investment. Real estate leads with 31% of Americans choosing it, followed by stocks/mutual funds, at 25%. A cautionary note though — although in most areas home prices have recovered from their 2007 - 2009 recession market slump and continue to rise, the value of your home can fall, as well as rise. Are you financially ready? Owning a home is a financial commitment that requires planning as to how homeownership fits into where your life is headed. Ask yourself what your budget is and if either buying or renting would require you to stretch your finances. Crunch all the numbers. A frequent mistake of first-time homebuyers is comparing a month’s rent to a month’s mortgage payment. Many people don’t have all the numbers. There are many additional fees necessary to include to make a fair comparison: principal, interest, property taxes, property insurance, homeowners’ association (HOA) fees, and ongoing maintenance. Are you prepared for the down payment? This is the lumpsum payment that funds your initial equity in the property (how much of the property you actually own). Down payments vary; 20% is preferred and gets the best loan rates. There are even some loans programs that allow down payments as low as ZERO%. Sometimes relatives help with the down payment. If you have a choice, take a gift from a family member if possible rather than a loan, because lenders will add a loan debt to other monthly obligations and potential total mortgage payments to determine your debt-to-income ratio, which generally should not top 40% of allowable gross monthly income to qualify for a home loan.
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