Home Buying Kit For Dummies. Eric Tyson

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СКАЧАТЬ friends, siblings, and co-workers all seem to be homeowners, you may sometimes feel as though you’re being a tad juvenile by not jumping on the same train.

      Everyone has different needs, but not everyone should own a home, and certainly not at every point in his adult life. Besides, although they may never admit it, some homeowning friends and colleagues are jealous of you and other financially footloose and fancy-free renters.

      A study even supports the notion that the life of a typical renter is, in some respects, better than that of the average homeowner. Peter Rossi and Eleanor Weber of the University of Massachusetts Social and Demographic Research Institute conducted a survey of thousands of people. Here are some of their findings:

       Homeowners are less social, on average, than renters — spending less time with friends, neighbors, and co-workers.

       Homeowners spend more time on household chores.

       Perhaps for the preceding reasons, renters have more sex and less marital discord and cope better with parenting than homeowners do!

      Buying because you’re afraid that escalating prices will lock you out

      From time to time, particular local real estate markets experience rapidly escalating prices. During such times, some prospective buyers panic, often with encouragement from those with a vested interest in converting prospective renters to buyers. Escalating housing prices make some renters feel left out of the party. Booming housing prices get all sorts of publicity, including from gloating homeowners clucking over their equity.

Never in the history of the real estate business have prices risen so high as to price vast numbers of people out of the market. In fact, patient buyers who can wait out a market that has increased sharply in value are often rewarded with steadying and, in some cases, declining prices (witness what happened in the late 2000s). Although you won’t be locked out of the market forever, you should keep in mind that if you postpone buying for many years, you’ll likely be able to buy less home for your money thanks to home prices increasing faster than the rate of inflation.

      Misunderstanding what you can afford

      When you make a major decision, be it personal or financial, it’s perfectly natural and human to feel uncomfortable if you’re flying by the seat of your pants and don’t have enough background. With a home purchase, if you haven’t examined your overall financial situation and goals, you’re just guessing how much you should be spending on a home.

      Again, the vested-interest folks won’t generally bring this issue to your attention — partly because of their agendas and motivations, but also because it’s not what they’re trained and expert at doing. Look in the mirror to see the person who can help you with these important issues. (Chapter 2 walks you through all the important personal financial considerations you should explore before you set out on your buying expedition.)

Chapter 2

      Getting Your Financial House in Order

      IN THIS CHAPTER

       Assessing your budget and spending

       Determining your savings requirements to achieve your goals

       Protecting yourself and your assets with insurance

       Remembering what’s most important in life

      When you’re shopping for a home, you’re the person best suited to look out for your overall interests. The people involved in typical real estate deals (such as real estate agents, bankers, loan brokers, and the like) are there to get their jobs done. It’s not within their realm of responsibility to worry about how the real estate purchase fits with the rest of your personal finances and how best to arrange your finances before and after purchasing a home. This chapter explains how you can address these important issues.

      

In the great history of home buying, many people have bought real estate without first getting their finances in order, setting some goals, and dealing with problems — and they’ve often paid dearly for this oversight. What are the consequences of plunging headlong into a home purchase before you’re financially ready? For starters, you can end up paying tens of thousands of dollars more in taxes and interest over the years ahead. In the worst cases, we’ve witnessed the financial ruin of intelligent, hardworking people who end up over their heads in debt (and in some situations, even in foreclosure and bankruptcy). We want you to be happy and financially successful in your home — so please read this chapter!

Surveying Your Spending

      Even if your income and spending fluctuate, you may have developed a basic spending routine. Every month, you earn a particular income and then spend most of, all of, or perhaps even more than what you earn on the necessities (and the not-so-necessary things) of life.

      

When you want to buy a home, saving is one area where it pays to be above average. Consistently saving more than 5 to 10 percent of your income can help turn you from a renter into a financially able and successful homeowner. Why? For two important reasons:

       To purchase a home, you need to accumulate a decent chunk of money for the down payment and closing costs. True, wealthy relatives may help you out, but counting on their generosity is foolhardy. The attached strings may make such a gift or loan undesirable. If you’re like most people, you probably don’t have any wealthy relatives anyhow.

       After you buy a home, your total monthly expenses will probably increase. So if you had trouble saving before the purchase, your finances are really going to be squeezed postpurchase. This will further handicap your ability to accomplish other important financial goals, such as accumulating money for retirement. If you don’t take advantage of tax-sheltered retirement accounts, you’ll miss out on thousands (if not tens of thousands) of dollars in valuable tax benefits. We discuss the importance and value of funding retirement accounts later in this chapter.

      Gathering the data

      One of the single most important things that you can and should do before you head out to purchase a home is to examine where (and on what) you’re currently spending your money. Completing these financial calisthenics enables you to see what portion of your current income you’re saving. Having a handle on your current budget also enables you to see how a given home purchase will fit within the budget or destroy it!

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