How to Make Responsible Real Estate Purchases
Before you buy a house, make sure you know how much house you can afford to buy and avoid the traps that other people fell in when the real estate bubble popped.
The real estate market may be down but it’s not out. In fact,
if you’re considering buying a house this is a good time to get in while prices are still at the basement level. Historically, when a major economic event occurs, houses drop in value. Eventually the price of homes climbs back up to a more realistic level, if not to the inflated levels they once reached. The market is like anything else really, it comes and goes in ebbs and while it may not be a great time to be a seller, it is a great time to be a buyer.
If you’re ready to buy, one of the first things you need to find out is how much house you can afford to buy. The biggest mistake buyers made in the past was to buy more house than they could realistically afford. Banks were all too willing to over loan on houses that were already over-inflated in value and the end result, as we all saw, was a crash when the bubble burst. So instead of letting the bank tell you what you can afford, make your own assessment about what kind of debt you want to carry.
When you look at your income and debt ratio, be realistic. If your income is based on two incomes, and you lose one, can you realistically carry your debt alone? If we have learned anything from the recent economic crisis, it is that no one has job security. Even people who have seniority with a company can end up laid off unexpectedly and struggling to survive on unemployment benefits.
So, while you may not plan on becoming a single income family, what happens if you do? Are you anticipating a mortgage that is one party’s entire paycheck? What happens when that paycheck is unexpectedly gone? Be realistic about how much mortgage debt you want to incur.
Don’t repeat the mistakes that the last recession was built on, one house at a time. Your home mortgage shouldn’t be your entire paycheck. It’s not realistic to expect to live on nothing to pay a mortgage, and as we have already seen, homes don’t always hold their value.
You can get an idea about how much real estate you want and need by looking at online real estate web pages, going to open houses and exploring the market, before you even put your toe in the water. You may be surprised to find that the recent real estate market has left a flood of wonderful, under-priced homes on the market.
Talk to your lender and your real estate agent. Get a firm idea about what you can afford before you start looking to avoid homes that are beyond your financial abilities.
