Can I Buy a Home?

I will be the first to admit for most people, it is a stretch to buy a home. However, the sooner you buy real estate, the more feasible it is for you to do so. Home values go up and down, yet historically, they continue upward with occasional turbulence. While there are years where the value levels drop, that rarely happens for more than two to five years at a time. It is always wise to plan on keeping real estate for two to five years. I have seen 10, 15, or 25% appreciation in a single year, a number of times since the mid 70’s, which quickly make up off years.

Few of us can save at the rate of inflation, and the beauty of home ownership is we get the benefit of the appreciation on the entire value of the property, rather than just appreciation on the amount of our down payment money. Here is an example of the difference in one year between leaving money in the bank and buying a piece of property for $1,000,000:

  • $200,000 into bank @ 2% interest = $4,000
  • $200,000 used as a down payment on a $1,000,000 home or condo equity* = $80,000
    • (*This example assumes appreciation of just 2% annually)

The example I used above is with a 5% down. Today many lenders offer 100% financing or ‘first-time buyer’ loans with special rates or percentages available. Some companies or associations, such as teachers, have special assistance programs as well. It may no longer take money to make money. However, if you use 100%
financing, be sure you know how you will be making the mortgage payments for up to a five-year period. One of the biggest deterrents to many people buying their first property involves the emotions and trying to find a particular property. I often hear “I’d never live in a condo” or “I will only live on a large lot,” etc., etc. Subject to buying the best location possible for your dollar, understand that taking a first imperfect step may be what allows you to build equity toward a second or third home that meets your desires.

Even if you live in a wonderful, rented house, don’t want to move, and wouldn’t live in a condo, you can buy a condo, rent it out, and have the advantage of, not just your equity appreciating, but the property’s entire value growing in appreciation. Another option for most people buying their first property is to buy one that facilitates renting out a room to help offset monthly ownership costs. Or, if you don’t qualify individually for the loan, buy with a friend, sibling, or even a parent. Often a parent can use the tax write off of having an investment property and you both win. The cautionary note in this approach is no matter whom you buy in
partnership with, the agreements, even between relatives, should be in writing. Include matters such as how long you will hold the property for, what parameters you agree to use if one partner wants to buy the other out. These and/or any other areas of concern are much easier to agree on before purchasing, rather than when your lives or interests have gone in different directions, or a dissenting sibling after a parent passes away.

Keep your credit spotless, or if it’s not, make a plan and clean it up. Meet with a mortgage broker, discover what a realistic price range is for you, and make your plan to become a homeowner.