I just came across this article from sfgate.com. I think it's something for every first time buyer to reader over and spend some time thinking about. Makes you think about what kind of house and payment is going to be best for you to start out with. I tend to agree that a first home purchase should be conservative and that the buyers should not stretch themselves thin in their finances to cover the house expenses. Give it a read:
Since 2000, homeownership rates in the U.S. have hovered around 66% to 67% of the population. In 1900, less than half of Americans owned their own home. The biggest surge in home buying came after World War II, when many young families were encouraged to buy a "starter home".
Attitudes about how to buy a home have fluctuated as much as interest rates during the decades since World War II, and eventually many first-time homebuyers were encouraged to "buy big", in order to stretch their budgets as much as possible, and buy the home they wanted to live in forever. Given the high level of foreclosures and the loss of value in many homes, today's buyers are more wary of taking on a home they cannot afford, but many are still tempted to make their first home purchase their dream home rather than their starter home.
A recent Coldwell Banker Real Estate Brokerage survey of their brokers revealed that while affordability was the number one concern of first-time homebuyers, 81% of those buyers consider move-in conditions very important when moving into a home. Only 7% were considering buying a fixer-upper.
Jim Gillespie, president and CEO of Coldwell Banker was quoted as part of the survey, saying, "In the past, first-time homebuyers were willing to purchase older, more basic houses in an effort to save money and break into homeownership. It is important for first-time homebuyers to remember that by considering a fixer-upper for their first home purchase, they can build equity over time and later move up and into their second-stage home that better reflects their expectations." (Read more, in 4 Types Of Home Renovation: Which Ones Boost Value?)
The Economy and Your Home
Personal finance writer Liz Pulliam Weston describes four economic changes that should discourage buyers from overspending on their house payment:
- Inflation
Rising prices, while hard on the household budget, usually came along with substantial annual raises. These days, homebuyers cannot count on a significant raise to make their housing payments easier to handle. - Two-Income Couples
Weston says that when more families had a single wage earner, the other spouse could go to work to pay for the house if they were in financial trouble. Today, most households have two workers and that double-income is needed to make the mortgage payment. Consider trying to base your budget on one income or perhaps one and one-half an income to make sure your housing payment will still be affordable if one spouse stops working. - Lenders
Thirty years ago, it was very difficult to qualify for a loan for more than was easily affordable, but as lending practices changed, mortgages qualifications became looser. Standards have tightened today, but lenders will always give borrowers the maximum amount they qualify for - not necessarily what they should spend. - Retirement
Thirty years ago and more, most people had their retirement covered by a pension and could count on Social Security. Today, retirement savings are more typically individually funded in 401(k)s and IRAs that come directly from your budget.
Each of these changes suggests that today's homebuyers should be shrinking their housing budget rather than expanding it, making sure that they can comfortably keep up with their payments, pay down their principal and build equity in their property.
clear skies,
doug reynolds
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