Don’t buy that house … yet!
For as long as I’ve been writing about real estate – 11 years and counting – real estate agents, mortgage loan officers, title insurers and new homeowners have been telling me that buying a home is the smartest investment a person can make.
“Residential real estate always goes up in value,” they tell me. “It’s steadier than stocks.”Well, not always. Just ask buyers in California who have seen the median sales price of single-family homes dip for the first time in 10 years.
But that’s beside the point. The residential real estate market will bounce back. It always does. But even when home prices do, indeed, begin rising again sometime, as some economists predict, in late 2008, does that mean that residential real estate is once again the best place for people to sink their dollars? Does it mean that buying a home is the best possible option for everybody?Let’s answer both questions with an unqualified “maybe, maybe not.”
There are definitely some people, despite what the federal government and real estate professionals may say, who need to be renters, not owners. How do you know if you fit into the “rent” or “own” category? Here are three clues that you should avoid purchasing a house, and taking on the mortgage payments that come with it:
1. You’re saddled with a significant amount of debt: Pay off your debt before adding the stress of a monthly mortgage payment. True, house prices are stagnant or dipping in much of the United States right now. That doesn’t mean that you can afford to add even more debt to your life.
2. Your income isn’t high enough: I’ve discovered while covering the residential real estate industry that mortgage loan officers will use any means to get people into homes, even if these people’s incomes are far too low. Don’t fall for this: If your monthly income isn’t yet high enough to handle monthly mortgage payments comfortably, keep renting until that income rises. My rule of thumb: Mortgage payments shouldn’t total more than 25 percent of your income. Some loan officers will argue that you can get away with payments that total a third of your income. I disagree.
3. Adding mortgage payments to your debt load will prevent you from saving for retirement: I have no idea what’s going to be available to me in terms of government assistance when I finally get to retire. Social Security? Who knows? It’s largely up to you to save up for your own retirement. If making those monthly mortgage payments is going to prevent you from stocking your dollars away for retirement, don’t buy!
Remember, there is no shame in renting. There’s far more shame, and stress, in taking on a mortgage debt you later find out you can’t handle.
Tags: mortgage-debt, rent-or-own, when-you-should-rentRelated Stories
POSTED IN: Buying a Property, Educational Tools, Insights and Commentaries, Mortgage, Real Estate Terms, Real Life Stories, Rent
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