BUYING YOUR FIRST HOME

There has never been a better time than now to invest in a home. The prices rise and fall as they may, but the Federal Reserve continues to lower the interest rates in an effort to further economic stimulation, allowing more opportunities for homebuyers. Yet, some people are hesitant of buying because they are either afraid or intimidated by the aspect of “losing money.”

The residential real estate market is thriving. If you’ve been pondering whether or not to buy but are afraid of the market, with a bit of proper knowledge you can fear no more. Buying a house is not like buying stock. Both are investments and both should be considered long term investments. A house generally appreciates in value each year along with inflation and so does stock. Bank accounts also appreciate in value due to interest. If you let them be, however, your bank account will be worth more money in 10 years than it is today, assuming you are getting some interest.

A bank account is the most conservative way to invest. Bonds are also another conservative investment. Stocks are a bit more risky. Most investors will advise that you diversify your investments so that you have some conservative investments as well as some high yielding, risky investments. The younger you are, the more risk you can afford to take. As you get older, your investing should become more conservative. After all, you don’t want to reach retirement age and find that you have nothing because the stock market crashed.

A house, however, is a different type of investment. Unlike stocks, bonds or bank accounts, a house is a necessity. We all need a place to live, and we have a choice between either renting a house or apartment from someone else or buying a home of our very own.

America used to be a nation of renters. Most people rented an apartment or row house in cities and very few lived in homes of their own. Those who were fortunate enough to have a home either had a farm house that they built themselves, or a house in a town where they prospered as a merchant or in some other capacity. Many homes stayed “in the family” and were handed down from generation to generation. The reason why people didn’t buy homes is because it was very difficult to get a mortgage. We don’t think that a mortgage is a big deal now, but back in the day it was considered a “debt.” It is still a debt, but people’s perception of being in debt has changed in the past 50 years. Today, we’re used to buying things on credit. We’re used to having a mortgage if we want a house. Fifty years ago, you had to have 50 percent down on a house before you could consider getting a mortgage. Then the bank would want extensive documentation.

Buildings and Loans, as seen in the film “It’s A Wonderful Life” were not banks. They were the predecessors of Savings and Loans that were pretty much eliminated in the 1980s by scandals and the fact that they could not compete with mortgage lenders. A building and loan used to use the money of the depositors strictly to build homes for other depositors. The home owners would then have a mortgage and pay on their mortgage monthly, with interest. The interest would then be distributed to the depositors. It was a concept of neighbors helping neighbors. The building and loan would also build the homes as well. This entire concept got convoluted since its inception and thus was the end of the Savings and Loans.

Today, mortgage brokers make loans to just about anyone. There are money down mortgages available, special programs for first time home buyers and even seller financing. You do not have to have perfect credit to buy a home. Even people with poor credit or a prior bankruptcy can get a mortgage. And mortgage lenders are dying to make a loan to just about anyone.

Getting back to the nation of renters. We gradually began owning our own homes thanks to the GI Bill that helped Veterans of WWII. You can still see GI Bill houses today. They are usually small homes that were built by developers and purchased by vets who took advantage of this program. Gradually, subdivisions started going up all over the place and people began getting mortgages to buy homes. Somewhere along the line in the last 60 years, people decided that it made more sense to pay their mortgage instead of someone else’s mortgage. If you are renting, that’s what you are doing. Paying someone else’s mortgage. There are many reasons why people rent, but only two make sense:

1. You are not planning on being in the area for more than a year or
   two at the most;
2. You have just moved to a new area and are not sure where to buy
   Any other reason (no money, not wanting the responsibility, etc.) is a poor excuse that can easily be overcome.
   Poor Credit?
   You can get a loan even at a competitive rate and the rate that you pay will be a lot less than when people were flooding the market to buy homes in the 1980s when the rates were twelve percent. You can still get a decent, competitive rate even if you have a bankruptcy. One option for some has been to obtain a loan on the secondary market.
   Self Employed?
   There’s a such thing as a “no doc” loan. You can get these with as little as thirty percent down. You no longer have to prove two years worth of income. You don’t have to prove any income with a no doc loan. They will do a credit check, an appraisal and that’s pretty much it. No tax returns, no proof of income is needed on a no doc loan.
   No Money?
   How much are you paying now in rent? Unless you are paying “zero” and chances are that you are not, you are paying someone else’s mortgage. Not only are you not investing in your future, but you’re probably also getting hit with huge income taxes. Even with no money down you can buy a home in some areas. Even if you have to borrow the down payment, you can pay that back with the first year’s tax return and your mortgage payment will probably be the same as your rent.
   Too Much Responsibility?
   A car is more responsibility than a house. A car breaks down more than things do in a house and needs constant maintenance. It needs gasoline to run and has to have the oil changed. A house does not need as much repair, is something that you need to survive as we require shelter and, it is stationary. Responsibility is a core part of life. Having shelter is necessary. If you cannot take responsibility for acquiring something that you need to live, you should really consider reevaluating your options.
   Afraid To Miss A Payment?
   What if you miss your rent payment? What happens then? If you miss your utility payments – what happens then? Again, you need a place to live. Why pay someone else’s debt off when you can pay your own.
   If you are planning on staying in an area for a period of time, you should buy a home. No matter the market, the resources, help, and guidance is available to you to prevent any missteps and get you into your dream home.

Until next time…
Take care of yourself, and those around you!

TX Veteran,
REALTOR ROB

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