It is hard to remember when there has been a better time to buy a home. In most places in the United States, with Manhattan and a few other places as notable exceptions, home prices are still well below their peak values in 2007.
If you would like to buy a home, the following ideas will help you get the most for your money without using most of your money!
Ask your mortgage loan officer how much you can afford to borrow then commit to borrowing less for your home purchase. It is tempting to buy a home that will stretch your finances to the absolute limit for some very good reasons, but, as the last five years have shown, that approach comes with some huge risks.
Find a home in a neighborhood where the average income is similar to yours or lower. If you stretch your way into a neighborhood where everyone earns more than you, you’ll feel painful pressure to keep up with the Joneses in ways that are hugely expensive. If your budget only allows for summer vacations to the nearest national park and your neighbors are all vacationing in Hawaii or Europe, you’ll feel poor even if you’re not!
Stay in your home a long time. If you can stay in your home for fifteen years or more, the mortgage payment will seem to get smaller. Even modest levels of inflation over long periods of time will tend to push the value of your home up, along with your income, making the mortgage look small. After fifteen years, the remaining balance on your home may be comparable to a typical new car loan, meaning you could pay it off in just four or five years if you really wanted to do so. The longer you stay, the cheaper it gets. Stay for 30 years and suddenly it will be free!
Maximize the down payment. When you buy your home, it is a good idea to put as much down as possible. It may require some sacrifice to get the down payment up to 20% of the purchase price, but that will not only reduce the monthly payment, because you’ll borrow less, but because you’ll avoid mortgage insurance, which adds no value to your home, apart from allowing you to make a small down payment. If you have retirement savings in a 401k or IRA that can be used for the down payment, that may make sense if you are not yet 40 (so you have plenty of time to save for retirement). Check with your tax advisor, but you may be wise to use that to get your 20 percent down payment. Don’t take money from retirement savings to create a larger down payment than 20 percent — keep the money in your retirement account.