Sugar Blossom

Should You Buy a Home?

Are you ready to make the home-buying commitment?

There are lots of pros and cons revolving around buying a home versus renting one. The old advice that home buying always pays off is no longer automatic in all parts of the country and for some people.

Rent or Buy?

You should rent:

• If you don’t want the bother of home maintenance and repair
• If rental rates in your area are low (compared to home prices)
• If you plan on moving around a lot because of job or other commitments

You should buy:

• If you want to take advantage of (recently very high) equity appreciation
• If you want the interest and tax write-off from a home
• If you want added security and privacy

While you can spend a lot of time debating the rent versus own question, my suggestion is that if you’re even remotely interested in a home purchase, you at least move forward enough to ?nd out what you can afford. After all, you can always opt out to stay/become a tenant

Can You Afford to Buy a Home?

Once the decision to investigate buying has been broached, it becomes a matter of determining what you can afford. To ?nd out, most prospective home buyers usually begin the traditional task of putting together a budget of their income and expenses. Their two big questions are, “How much money will I have to put toward a monthly payment? How much money do I need for a down payment and closing costs?” Unfortunately, this is like putting the cart in front of the horse.

My suggestion is to stop, take a deep breath, and rethink. What your budget tells you at this stage is moot. Today it all comes down to what the lender says you can afford-how big a mortgage the lender is willing to give you. (It could be for 100 percent of the pur­chase price!) After all, you can always borrow less than a lender’s maximum (to reduce your monthly payment, for example). But, it’s very hard to borrow more.

If you bought a home in the past, say ten years ago, it may seem odd to go to a lender ?rst, before you even do your own budgeting. But be aware that the process of buying a home has changed. Today your budget needs to come later. Your ?rst questions should be, “How big a loan (and monthly payment) can I get?” For that infor­mation, you must contact a lender directly.

Don’t Rely on Secondhand Information

You can only get the answer to how big a loan and monthly payment a lender will offer from a lender. Don’t make the mistake of thinking you can ?ll out a quiz in a book, go through some formulas, and get that information. Neither I nor any other author can realis­tically tell you what you can afford without knowing your speci?c ?nancial information and without submit­ting that to a lender.

Therefore your ?rst step is an easy one. You ?nd a lender and get “pre-approved.” (This is something you will need to do in any event in order to get home ?nancing, so it’s not a wasted or extra step.)

Pre-approval takes perhaps a half an hour or so of your time. You contact a lender or mortgage broker, ?ll out an application, provide some documentation, and that’s it. It might cost you $35 for a credit report (or it might not, depending on how good your lender/mortgage broker is), but that’s really a very small investment. You’ll have your answer in a few days or less.

[tags]Rent, Buy, Home[/tags]