They say home is where the heart is.
However, in current economic times, I have learned that home buying is not for the faint at heart.
The process of buying a home today is treacherous because banks have once again started lending more than you can possibly afford to repay. Proceed with caution.
Due to the cost of renting increasing into the stratosphere, it makes owning almost inevitable.
Buying a home now is like playing Russian roulette with your finances. Eventually, your wallet can’t dodge the bullet.
After speaking with numerous colleagues, friends, family, and acquaintances it is safe to say that the subprime mortgage crisis is roaring back into people’s lives like a lion.
Housing prices are getting out of control again in America.
This is some of what I have uncovered so far.
Rent too high, houses too small.
Rent is too high. There is no cap on rent. Sky is the limit. And that limit is going to the ceiling. It is no secret that renting can be expensive. This is acutely felt when living in high cost areas such as San Francisco and New York. Rent has doubled in the last 20 years. Read this article Rent is totally out of control. Making it harder for folks to save and buy a home of their own.
Low cost-housing is shrinking. As neighborhoods around the country gentrify, more people are being displaced. I actually saw blogs and articles about people discussing living in cars, vans, and in their cubicles! That’s no joke. Read the article here I secretly lived in my office for 500 days.
The country is also losing 125,000 affordable rental units a year. Read all about it The affordable housing crisis.
Amount of homes available to buy is too small. Not only are there not enough homes for sale on the market, but the ones that are more affordable tend to be on the smaller side.
Location, location, location. Many are priced out of major metropolitan cities where the jobs are plentiful. I work in the Washington, DC area and the location I commute to has homes on the market in the millions! That’s right folks, if you can write the next hit song for Beyoncé, then you can afford the housing prices in certain parts of the District.
Applicant pool shrinking. The amount of folks actually able to buy a home is getting smaller. Financing may be a little harder to come by when you owe tens of thousands in credit cards, auto loans, and student loan debt. Fewer people are able to not only apply but be approved for home loans. Thus, creating a vicious cycle of not being able to afford to rent but not having enough to buy.
Prices of homes on the market are increasing. This is where I get steamed. I have heard of people being approved for anywhere from $250,000 to $625,000. Even on one salary! Come, on. This is not legit. It makes no economic sense to put yourself into a mortgage that you can’t afford or that would possibly lessen your quality of life.
I read that it is best to purchase a home for about half of what you are approved for so that you will not become house rich, but cash poor.
In addition, you should put no more than 20 percent down as anything more could expose you to unnecessary risk. Should the market go down and your home goes under-water so too does your down payment as it now sleeps with the fishes. This means you got too much skin in the game.
A house is not a home. Fill it with love and laughter. Easier said than done. First, you have to find a partner. If not, you have to be able to afford to live alone until you find one and that my friends can be expensive. Don’t believe me, then read this It’s getting very expensive to live alone.
Foreclosure. You go and get a piece of the American Dream and buy a home. Congrats! You own a slice of American pie. Then it all comes crashing down as your home plunges under-water and your adjustable rate mortgage loan ballooned your payments from an affordable $1,200 a month to $3,000. This not only displaces your family, but hurts your credit.
Short sale. Due to circumstances that may be beyond your control; you lose your home. You owe more than the home is worth prompting you to decide to sell at a loss. The added pressure of a lender sending an eviction notice and threatening foreclosure aggravate this process.
Save for a home. For all the reasons stated above is why you must save for a home and not let your eyes be bigger than your wallet. Forget the Joneses. I mean what did they ever do for you anyway. Are they going to take you in when the sherriff shows up to evict you? No way!
My advice is to put aside the 20 percent down payment over a two to four-year time period. Find a home you like. Get the price and figure the amount you need to save over four years to have the down payment. That would mean saving five percent of the purchase price annually.
For example, $180,000 x .20 = $36,000/4 = $9,000 per year or $750 per month. This decreases the amount you have to finance and lessens the amount of interest you pay over the life of the loan.
You can use these posts to help be your guide and inspiration toward saving a down payment.
Morale of the story: Let the American Dream be whatever and wherever you want it to be as long as it’s in a neighborhood you can afford.