Dealing with the fears of fence sitting first time buyers

People who claim to be home buyers are sometimes not really sold on the idea of leaving the Land of the Bland, the world of temporary housing, the rental world.  At some point in their journey to a better lifestyle, they are slapped by the harsh reality that they are contemplating making the biggest financial commitment in their lives.   Or, are they???

Many of my first time buying clients are limited in their buying power by their previous and ongoing commitments.  The first time buying couple typically have two late model car or truck loans to pay.  The original amount of the two loans is usually somewhere between a third and half the principal of their expected mortgage.  Their two vehicles are worth around half of what they paid, and they owe considerably more than that. 

Most of the first time home buyers I have assisted use an FHA loan and many ask sellers to pay closing costs.  The cash outlay for the new home is somewhere between $7-12K, and their new payment is a nominal increase over their rent payment, often mitigated by an offsetting tax deduction benefit.

The Big Leap from renting to owning is really not such a big financial leap, and it is often less of a commitment than others they have made.  Their two cars, bought new, cost them more in lost value the first year than the money they are contemplating investing in their lifestyle upgrade.  The two cars, if well taken care of, will last them maybe ten years, when they will be worth a small fraction of their original value. 

A new home requires that buyers risk an amount about equal to a first year's guaranteed value loss of two new cars.  The huge economic commitment of buying a home is really not that big.  If some unforeseen tragedy strikes and the home is lost, the original cash outlay could be lost.  The impact would be similar to the guaranteed loss of value experienced the first year of owning two cars.  The risk is not a new one, just a different one of about the same size as others they have already accepted and survived.

Here's the bottom line for renters trying to decide whether to buy or remain in temporary housing.  You are risking an amount that you have probably risked before.  There is a chance that an unexpected tragedy could cause you to not afford to make your payments.  The same tragedy would cause you to not afford to make your rent payment.  Either way, you're out on the street or moved in with generous relatives.  Quantifying the risk, it's about the same as the risk of buying two new cars, but loss is guaranteed with the cars.  In exchange for accepting the risk, you will no longer be a temporary resident, your payments will be frozen for thirty years when they will end, and during those thirty years you will be your own landlord.