Is it?….. a good time to buy a home or a bad time?
It definitely is a question folks have different opinions about that’s for sure.
I bought my first home when interest rates were 18%- back in 1982 whew!
I couldn’t live in it. The payments were $365.00 and my rent where I was sharing a home was $250.00.
As an early investor I learned fairly quickly that it is a good time to buy a home if:
- Your desire is to stabilize your housing expense
- Your payment is within your budget
- You plan on being there for a time
- You do not anticipate a hardship if you need to sell.
Stabilizing your housing expense:
Rents go up and hardly ever go down. They could go down. A slumping economy, neighborhoods that folks tend to move away from and the availability of work that supports the expenses to live there dictate the market. And that goes for rents that are always going up.
If you live in a rising economy, you plan to be there for a while, and rents are increasing…. I would advise you to consider buying something. Remember, I could not justify paying 115.00 dollars more to live in the first home I bought over where I was currently living.
I recently purchased a home last spring, with the same type of situation. The price was right, the situation was good and I was able to buy down the interest rate and lock it to keep the mortgage payments in line with the rents. (More on that in another blog post).
And that fits the second question: Is your payment within your budget? I do not recommend becoming house poor. Or debt poor for that matter. Cash is King.
A bad debt, like revolving credit siphons your income and puts it into somebody else’s pocket. Mortgage lenders require that your home mortgage payment should be under a certain percentage of your income. 28-31% for mortgage and 41-48% for all debt, including mortgage. I recommend to folks that they ought to buy the garage before they buy the car. A car payment can keep you out of the home buying market, as can those credit cards. However, the reverse is not true. Fog a mirror and get a credit card. Walk onto a car lot and buy a car. It might be far more economically sound to buy a car you can pay off quickly, and have no long term credit debit, just what you can pay off month-to-month. And buy that home.
If the mortgage payment is similar to your current rent- I would consider buying…. But we need to ask the next question
Are you planning on being here a while? Why does that matter? The purchase of the home incurred some expenses. Closing costs and possibly fix-up expenses were spent to buy the home. If you factor these into the housing expense, over a short period of time, purchasing becomes far more expensive than renting. If you are planning on owning the home for a while, these additional expenses will eventually average out and soon, your monthly housing expense will be lower than market rents.
But the last question is important too. Will you risk having to sell after a short period of ownership? Here again there will be costs associated with the sale- Excise tax, closing costs, sales agents. If the market price of your home has not risen enough to cover these costs, these expenses need to come from you. It happens that folks need to sell in difficult times and in there is a solution I’ll save for another blog post.
Rest assured, if you are buying a home or selling, there is a path and I can help you navigate it.
Copyright © Daniel J. Dotson 2023
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