The logical answer is – because we want to own a home. But there are more reasons and they go deeper. If you can completely answer this question, those answers will smooth the house hunting process. The process will beat you up, but having a clear picture of your big goal and the little goals within it will give you the strength you need to succeed.
If you live in Manhattan, Honolulu, or San Francisco, where land is scarce and prices are almost too high to believe, you may accurately be thinking about future profits. This is not a bad goal for those areas. If you live in Dallas, St. Louis or Detroit the rate of appreciation on a home is just good enough to stay ahead of inflation. So in these areas future appreciation would not be a good primary goal. Know your market and research the average price of homes like your target over the last thirty years.
Owning a home can be a great strategy for your retirement. If you are 25-35 years old, that seems like a long way off, doesn’t it? Here is a real estate secret that will help you see how that long range goal fits into your near term plans. As you pay off the loan in your first home you build up equity (the amount of the home’s value that you own after the amount owed to the lender.) Now you may not stay in this home forever, but the equity you built up will go with you in your purse or pocket when you sell it. You would most likely take that equity to put down on the next home. Over a lifetime this builds up a very nice nest egg, which you of course will support with diversified investments in other areas like stocks, bonds, hard investments and perhaps other real estate.
Remember what your mom or dad told you – buy low and sell high. So don’t have all of your money in the house because you may end up having to sell at a low point way out in the future, because of a change in the economy, a health condition, or a family need. The more wealth you have, the easier it is to time when you will sell any of those assets.
So for most of the folks in America the main purpose for buying a first home is to have a place that is truly yours and not one belonging to someone else. If I want to hang a picture, paint the front door red, plant a tree, or put in a spa I don’t have to check with anyone. My little castle for me and mine. I can tell you that things change when you get your own home. It changes who you are. You are now an owner of something substantial and have gained control over at least one aspect of your life in a world that seems so uncontrollable at times. It will change the way you do your job at work, the way you perceive your marriage, and may lead to a future most renters will never know – a home that is paid off and is no longer a burden to you.
In deciding WHY you must think of WHAT first. Here is one silly example. If you miss the family barbeques you had on the patio of your family’s home as a child. Roasted corn on the cob, watermelon seed spitting, crazy Uncle George banging out songs on the piano in the basement, the smell of ribs on the grill, a piñata splitting run with a bat, and a kite flying above the back yard with your cousins. Envision yourself enjoying the things YOU want and then you can see the tools you will need to make that enjoyment possible. A place to walk your precious dog, a nearby tennis court or pool, a school within walking distance, an easy access to stores or public transportation, a garden to build or preserve to your heart’s delight. The clearer of a picture you can paint, the more quickly you will know the right home when you see it.
Here is a little warning. If you are a single person buying on your own you won’t need this paragraph. If you are a traditional married couple you won’t need this paragraph. If you have any other status your really need this paragraph. If marriages are fragile in America today, all other relationships are even more so. Buying a home with a life partner, a business partner, a pal, or any other significant other can have enormous financial consequences. PLEASE CONSULT, BOTH OF YOU TOGETHER, WITH AN ATTORNEY ABOUT HOW TO TAKE TITLE. The attorney will ask significant questions that you may not be thinking about.
Story – Raymond and Bill were life partners and had been together for 18 years. When Bill’s mother passed away she left him her house in a nice neighborhood. There was about 50% equity so this was a nice bequest. Bill had a modest job and Raymond a better one with more compensation. They decided to carve up the way that they would pay bills. They took out a new loan to get a better interest rate and since Bill had bad credit and lower income they put the home in Raymond’s name. Raymond made the mortgage payment, taxes and insurance. Bill paid for the utilities, groceries and almost everything else associated with the home. A year later they had a falling out, oddly over selling the deceased Mom’s fine china and silverware. One day Bill came home from work and found himself locked out of a home that had been in his family for over 50 years. He sued but the judge had no choice because Raymond had title to the property and had been making the mortgage, tax and insurance payments. Raymond got the home and all of the equity in it.
Now this story is actually sadder than what appears on the surface. Not only did Bill find himself homeless because of fraud, he was also without emotional support because his life relationship had failed at the same time. Two of the most difficult things to deal with both at the same time.
Story – Jillian and Rafael had been dating for two years and finally moved in together. After about ten months it seemed smarter to own a home than to continue paying the outrageous rent that they were carrying. Jillian’s father didn’t particularly like Rafael but as long as the boy made his daughter happy he would put up with him. Along come the four elements of buying a home – each party’s cash for down payment and closing costs, each party’s income, each party’s debt, and each party’s credit history. Verbally Jillian and Rafael agreed that they would participate 50-50, but they were just getting started and didn’t know about the four elements. Turns out Jillian had a bad credit history, no cash, good income, but many debts. Rafael had good credit, no cash, modest income and no debts. Together, by themselves, they could not buy the home. They needed a co-signor and Dear Old Dad was the only one available. Rafael with Dad could buy. Dad and Jillian could not. So Dad starts asking attorney-type questions: how much down payment are you bringing, what is going to be your monthly contribution to the mortgage and other costs, how stable is your job, why aren’t you two married, etc. etc. You will probably understand that things unraveled very quickly.
Buying a home is a big deal. If you want to test an unformalized relationship, there is probably no better way than buying a property other than holding hands running through the streets of city in a civil war carrying the last remnants of everything you own in a suitcase under mortar fire. Go see the attorney. See chapter 21 on Taking Home Title.
<< Chapter 1 Chapter 3 >>