With the passing of years, your family has no doubt grown in number and in accumulated possessions. Your living space, however, probably hasn’t had the same flexibility to accommodate your family’s expanding proportions. From stuffed closets and items piled on every flat surface available to feelings of claustrophobia and a complete lack of personal space, your home environment may be telling you it’s time to expand.

There is perhaps no more important decision in your life than the one to buy a home. The decision to move from renting to homeownership is not one to be taken lightly. Your family’s interests, finances, and long-term plans and goals are all important factors to consider before making the decision to move from renting. For some families, renting is the ideal option. It offers a sense of flexibility and ease of mobility over owning and the “maintenance-free” aspect of renting is, perhaps, its major selling point.

For many however, the American dream of homeownership is an important goal in life. According to the U.S. Census Bureau’s Census 2000, 66.2% of occupied housing units were owner-occupied—indicating that two-thirds of Americans have decided that homeownership is the right choice for them.

If your family is ready to consider the big step into homeownership, take your time and do your homework. Time well spent early in the decision-making process will be beneficial in the long run. According to Fannie Mae, the nation’s leading foundation devoted to affordable housing and mortgage programs, there are specific positive and negative aspects to consider when making a decision to buy a home:

Pro:

• As the owner, you are in complete control of your family’s living space and have the freedom to change wall colors, carpeting, fixtures, appliances, etc.
• Houses can increase in value over time and thus you increase the likelihood of increasing your net worth.
• When your home appreciates in value, you gain equity in your home. That increased equity is useful if you need to obtain a home improvement loan or a home equity loan/line of credit (the greater the equity in your home, the larger your loan amount options.) Greater equity also increases the amount of cash you will receive should you decide to sell your home.
• Owning real estate is a vital part of a diversified financial portfolio.
• Interest paid on a home mortgage is often tax-deductible.
• Interest paid on a home equity loan or line of credit is also often tax-deductible.
• “Putting down roots” will establish you and your family as part of a neighborhood and a community.

Con:

• Although there are creative financing options available allowing you to buy a home “with no money down,” the standard down-payment for a home is 20% which, depending upon the sale price of the home, can be a substantial lump sum to make available.
• Other expenses such as closing costs, taxes, private mortgage insurance (PMI), and homeowner’s insurance and/or flood insurance also add up to considerable amounts and will impact the monthly budget in conjunction with a mortgage payment.
• You will be responsible for repairs and maintenance to your home’s exterior (windows, roofing, landscaping—including mowing) and interior (plumbing, painting, carpeting, etc.)
• You will assume the added expense of basic household items such as a refrigerator, range, washer/dryer, hot water heater, lawn mower and lawn implements, tools, etc.
• The process of maintaining a house is both costly and time consuming.

Another key item to pay particular attention to is your family budget. Dedicate time to sit down and take an honest and truthful look at where your family income goes each month. Don’t forget to account for the little things like that $2.50 cappuccino each morning before work (which adds up to over $50.00 per month or $600.00 per year!) or newspaper and magazine subscriptions. Pay particular attention, as well, to your credit card balances and whether you tend to pay them off immediately or carry large balances. There are numerous books and websites available with household budget templates that make the task a basic “fill-in-the-blank” procedure.

Guidelines from Fannie Mae state that, in general, a household should spend no more that 28% of its income on housing expenses and no more than 36% of its income on total debt obligations (including the monthly mortgage payment).

Once you have your budget figures determined, you might want to investigate how much house your budget will allow you to buy. Most banks offering mortgages typically have “calculators” on their websites, which are a great help in determining the appropriate housing price range for your family.

In addition, remember that your financial history is going to be a determining factor in a potential mortgage approval process. If you’re considering a home purchase in the future, now is the time to start taking steps to improve your credit rating. Check your credit rating and, if necessary, start taking steps to improve your score (i.e., make timely payments, get outstanding balances under control, etc.)

A comparative market analysis is a smart move once you find a home you are interested in purchasing. A CMA is an assemblage of recent home sales in a given region for a similar size and style of house. A CMA gives you a bit more reassurance that a home you are considering is priced within a realistic range for the neighborhood, size, and condition. Your real estate agent should be willing to provide a CMA for you and, if you are planning on a certain geographic region, you may want to do some research on your own to gauge if the area and type of home you’re interested in are within your budget. Typically real estate transactions (where a transfer of a property deed exchanges hands) are recorded at a county records office and are public record.

Owning your home is a rewarding and financially advantageous decision. Do your research, ask questions of experts, and make an informed decision that fits your family’s budget and long-term goals.

Sources:
Fannie Mae Foundation—www.fanniemae.com
U. S. Census Bureau—www.factfinder.census.gov
Personal experience having just purchased a home and established a home equity line of credit.

Articles are provided for the general interest of our readers. Gerber Life Insurance is not responsible for any content and recommends that you consult the appropriate professional with any questions or concerns you may have concerning any financial or health related issues.