Overcoming Fear of Buying a Home
By Peter Boutell
It is no wonder that qualified prospective buyers hesitate when it comes to buying a home. When it comes to experiencing stress, buying a home has got to be right up there with divorce. Buying a home is a longtime commitment, it takes a lot of money both up front as well as monthly and owning a home requires maintenance and financial responsibility. While it is considered a long term investment, it is certainly not liquid. That is, when it comes time to sell it, it is not so easy to cash in on your investment like, say, stocks would be. On the other hand, if you don’t own a home, you are making the mortgage payments for your landlord; you could be forced to move out at the whim of the landlord and you are more than likely to experience rent increases. Even in the wake of the mortgage crisis that we all experienced some years ago, the mortgage industry has stepped up to make buying a home as easy as financially possible. The mortgage industry allows borrowers to buy a home with just 3 percent down and to spend up to 45 percent to 50 percent of their monthly income on their principal, interest, taxes, insurance or PITI.
On top of that, the Internal Revenue Service allows homeowners to deduct mortgage interest and property taxes from their income when calculating income tax requirements. This will effectively reduce the actual cost of housing’s monthly payments by several hundred dollars a month. Perhaps this fear of buying lies in the fact that paying 45 to 50 percent of your monthly gross income cuts into the family budget too much. Maybe prospective homebuyers are setting their sights too high when it comes to affording a mortgage payment. Buying a lower priced home or buying a home with more down payment (gift money from close relatives to cover down payment is OK) would make the prospective homebuyer more comfortable with the decision to buy a home and would relieve some of the stress that homeowners feel around the obligation to make that mortgage payment every month.
The other consideration is how much will your home increase in value through the years. A $500,000 home that is purchased with $50,000 down and appreciates 5 percent per year will grow in value $25,000 per year which is not bad for the $50,000 investment. Advertisement Buying a home is clearly not right for everyone. In fact only 60 to 65 percent of Americans own their own home and nationwide, according to Wikipedia, of these homes, owners have about 50 percent equity. In other words, the average mortgage held by these homeowners is about 50 percent of the value of the home, which probably sounds pretty good to the first-time homebuyers who must borrow more than 80 percent of the value of their homes. The best first step for the prospective homebuyer is to first analyze the household budget and then to meet with a mortgage professional to find out the cost of homeownership. The best first step for the prospective homebuyer is to first analyze the household budget and then to meet with a mortgage professional to find out the cost of homeownership.