| The usual tips for buying a first home are given | | | | fairly and see if buying your first home makes |
| by those in the industry, so they tend to be | | | | sense where you are, like it does here and now. |
| somewhat self-serving. To begin with, any loan | | | | Buy Less Than Recommended |
| broker or real estate agent wants to believe - | | | | Again, the key players in the industry - those |
| and wants you to believe - that everyone should | | | | making the loans and those selling the houses - |
| buy a home. Since I am writing this in 2010, after | | | | have a bias. The bigger the sale's price, the more |
| the bubble has burst, I am sure there are many | | | | money the real estate agent and loan broker |
| hundreds of thousands of people who now realize | | | | make. Don't buy into their formulas that have you |
| it is not always a good idea to buy a house. In | | | | allocating 35% or 40% of your income to a |
| most cities around the country, if you had rented | | | | housing debt. Employment is less predictable than |
| since 2006 (the top of the market), you could | | | | ever, and you might have to make ends meet |
| now buy at a big discount. That brings us to our | | | | without a job at some point in the coming years. I |
| first important tip. | | | | recommend keeping your loan payment, taxes, |
| Compare to Rent | | | | and insurance to 30% or less of your after-tax |
| If buying costs significantly more than renting, it | | | | income. |
| may be better to rent. For example, in 2006 in | | | | The exception to this guideline is when you would |
| Tucson, Arizona, a two-bedroom house might | | | | otherwise have to rent for more than that. If |
| rent for $750 per month but cost $1,250 per | | | | renting an apartment will take 35% of your |
| month to buy (mortgage payment, taxes, | | | | income, and you can spend the same to buy a |
| insurance and routine maintenance).This | | | | home, then it might make sense. On the other |
| discrepancy was a clue to the state of the very | | | | hand, you might also consider moving to an area |
| speculative market. Had you bought such a home | | | | where rents or home prices are lower. |
| then, you would have spent $24,000 more than | | | | Consider All Costs |
| renting by now, AND the hose would be worth | | | | When buying a first home, it is common for |
| 30% less. | | | | people to look at just the most obvious and |
| This isn't just about prices though. Interest rates | | | | predictable costs. In other words, when shopping |
| go up and down over the years, and this makes | | | | one house is compared to another on the basis of |
| a difference in whether it makes more sense to | | | | just the mortgage payment, perhaps including the |
| rent or buy. A house can have the same price | | | | taxes and insurance. But there are many other |
| but cost twice as much to buy with a 13% | | | | factors that determine your personal expenses. |
| mortgage loan (the going rate in 1984, for | | | | For example, if one house is ten miles further |
| example) as with one at 6%. Rental rates don't | | | | away from your job than another, you could be |
| fluctuate as quickly, so it can be better to rent | | | | paying $500 more per year for gasoline, and |
| and wait for better interest rates. | | | | spending an extra 150 hours per year in your car. |
| At the moment, there are many places, like the | | | | Every house will also be a bit different in how |
| small Colorado town where we live, where it is | | | | much it costs to heat it or maintain it. Do your |
| cheaper to buy than to rent. This is due not just | | | | best to estimate all the real costs of each before |
| to dropping prices, but also near-record low | | | | buying your first home. |
| interest rates. Compare rent versus ownership | | | | |