VOL. 127 | NO. 106 | Thursday, May 31, 2012
Rays of Wisdom
Dana and Ray Brandon
Consider Buying Your First Home
By Ray and Dana Brandon
Ray’s Take I’ve long believed the economic benefits of home ownership are overrated and renting is under-appreciated. However, for some first-time homebuyers the math has started to turn and they may find it less expensive to buy a home than rent!
The Housing Affordability Index is at its highest level since recordkeeping began in 1970. This means home ownership is more affordable than it has been in more than 40 years. Why?
Mortgage rates continue to be exceptionally low. Home prices have plunged. Existing homes are languishing on the market, plus there’s an exceptional quantity of foreclosed homes available at bargain prices.
Added to this is a “shadow inventory” of homes that are either bank-owned or going through foreclosure. These homes are being kept off the market in hopes that home prices will soon rise. That’s a lot of downward pressure on home prices.
Lending standards have started to loosen up, making it somewhat easier to qualify for a mortgage. The “zero down” deals are gone, thank goodness, so expect to have a good down payment.
When you do the math, it may be cheaper to “rent” money from a bank to purchase a home than to rent a home. Since so many foreclosed families are returning to rentals and others are hesitant or unable to buy, rental rates are on the rise. If you lock into a fixed interest rate mortgage, you won’t be facing those increases.
We haven’t even talked about the special incentives in place for first-time buyers like property tax deductions, mortgage interest deduction, and equity building. But don’t expect to rapidly build equity with rapid appreciation in home prices as with prior cycles. A lot of other important factors should be factored in, the probability of staying put for a while chief among them. However, for lucky first-time buyers, the tide is turning.
Dana’s Take Buying your first home is both exciting and scary. Two ways to decrease the scare factor is to have your Realtor include two requirements in any home offer you make.
Insist your contract becomes valid only if the home passes a professional home inspection. Be sure to attend the home inspection and ask questions. You’ll learn a lot about your home and find out about any hidden flaws. If there are important problems, this gives you an opportunity to either negotiate for a better price or have the present owner make needed repairs.
Secondly, ask the home seller to pay for one year of home warranty insurance. Since you typically have a lot of expenses associated with moving, this gives you a financial cushion in case something does go wrong with the home in your first year of ownership.
These safeguards help lessen the worries of unwelcome surprises so you can focus on the exciting aspects of owning your own home.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at firstname.lastname@example.org.