Over the course of the last few months we’ve been talking quite a bit about incentives that the government is giving first time homebuyers in order to prod them into buying a home.
First there was a $7500 loan that homebuyers could pay back over time. That wasn’t an amazing deal, since you had to pay it back, but many took advantage.
Then earlier this year a new incentive was passed that gave first time homebuyers an $8000 refundable tax credit that they could claim on their 2008 or 2009 taxes. When the FHA announced that you could use that $8000 credit towards a down payment, the deal became even sweeter. Within the past week or so legislators began debating whether they should pass an additional $15,000 refundable tax credit for all homebuyers.
Besides all the tax credits that are being handed out right now, interest rates on home loans are still relatively low in comparison to where they were even a couple of years ago. In 2006-2007 rates were upwards of 7% for many homebuyers. Now you can still find a rate below 5%.
It’s a buyers market, with home prices in many areas dropping upwards of 10-20% in the past year.
If I were looking for a house right now, it would seem like an extremely good time to buy!
Just Because It’s A Good Time To Buy A House, Doesn’t Mean It’s A Good Time For YOU
It can’t be denied, the market for first time homebuyers is pretty good right now. But the question is this. If the market is this good, should you be trying to buy a house – even if you’re not really ready?
I’ve talked with friends who are considering buying a house right now. They’ve rented for years, and have recently become debt free. They even had the foresight to start saving up for a down payment of 20%. For them, I think right now is the probably the perfect time to buy. They can probably get more for their money, and save thousands in interest because of the lower interest rate they’re getting.
I know another couple that is in a different situation. They’re in the middle of paying off a substantial amount of debt, and it’s to the point where there debt payments are a big chunk of their income every month. They also would like to buy a home instead of “throwing away” rent money every month, and they could probably find a house for about the same monthly payment as their rent payment.
If I were in their shoes I’m not sure i would be looking to buy a house right now, even though they could do it for the same cost as the rent. The problem is, there are a lot of costs associated with home ownership that people don’t think about.
First, when closing on a home you’re probably going to have closing costs, escrowed taxes and insurance, along with a ton of other small fees. Add to that the ongoing maintenance and utility costs that go along with owning a home, and it quickly becomes an extremely expensive proposition.
So when you take the costs of home ownership (which WILL be more expensive than renting in most cases) and throw in a bunch of consumer debt, I think the risks of buying a home, even in a buyer’s market can really outweigh the benefits. The blessing of home ownership can quickly turn into a curse if even one or two small unforeseen events happen.
Lose a job or have a medical emergency, and you can end up barely making ends meet, or getting behind on your mortgage payments. You’ll end up becoming a slave to your nice new home.
Buy A Home When The Time Is Right For You
My advice when considering home ownership? Buy a house when the time is right for you, not when the market says the time is right.
If you’re struggling to get out of debt and are on a strict budget, the time probably isn’t right. Get your financial house in order, pay off your debts, and start saving for a 20% down payment. Buy when you know the home will be a blessing and not a curse.
If you’re doing well financially, you’ve paid off all debts and you’ve got a nice down payment saved, the time might be right. Talk it over with your spouse, find a house that will fit well into your budget, and take a look into all the programs available now for first time homebuyers. You may find yourself an extremely good deal.
Have you been considered buying a new home right now, even though you’re not completely ready? Have the good rates and low prices made your decision a tough one? Have you given in to buying a house even if you weren’t ready? Tell us about your experience in the comments.
We would love to buy, but even the tax credits don’t make it a good time for us. There’s a slew of things that can go wrong with a house (especially houses in our price range – which may require a little TLC), and even though we could scrape up enough money to get into a house, we wouldn’t be prepared to face any repairs.
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Matt Jabs says
I love this post because it challenges popular thought!
Just because the market is right, doesn’t mean it’s a good idea for YOU to buy right now.
In fact, unless you have at least 20% for a down payment saved, and no other debt, you should just forget about buying for now.
Matt Jabss last blog post..Powerful Advantages of Renting a Home Before Buying
We were in a similar position this year were debating if we should buy or rent, our first choice was to buy but after some thought decided that we’d wait a little longer till the time is right for us….
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Jason Y says
I do hope the market remains this way just a couple more years so my wife and I can buy a house.
M Edwards says
You’re quite right. The time should be the right time for the buyer. Too many people freak about what’s happening in the market and even take too much notice of peer pressure.
Thankfully, for us, the two came together at the same time. Our first daughter was born in February, and we needed to expand from our two-bedroom apartment (where the 2nd bedroom was my full-time home office).
The perfect piece of property came on the market at more than 25% off its last price, the location can’t be better, we got a super low interest rate, and then the $8000 credit.
We’re not buying because we want a house to invest in, we’re buying because we need the house to live in.
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Thanks for saying that. My husband and I are in a two bedroom apt with a 4 yr. old, a 2 yr. old, and an 8 month old baby. We would love for our children to have a home and a backyard and somewhere safe to play.
This article brings up a lot of good points about being ready to buy. Many have said that even you can afford the down payment and closing cost etc, you shouldn’t buy if you have any other debts or if you don’t have a large amount of savings for situations that might arise.
The thoughts that linger for me are related to “timing.” By the time my husband and I pay all of our student loans off, the kids may very well be in their teens and on their way out the door. What about wanting to buy a house for the “living” of it even if your money may be tight for the first few years?
It just seems like sometimes there is a message that says, “Unless you are debt free and have 80,000 in savings, you can forget it!”
We close on Monday on our house. Many people forget to realize that there is the FHA loan. You only need 3.5% of the cost of the home as a down payment along with closing costs and other fees. We were able to do this because we bought a home that was reasonable and completely within our budget. In the end, we will pay at closing $8200.00, without deducting the $500.00 we already paid at the time we made the offer. Thus, we will pay $7700.00.
You do have to wait. After my husband completed his doctorate in audiology along with my studies, we were swamped with lots of school loans along with just entering the work force. Ironically, after some years working, my husband is doing well, but now I am unemployed. Hint, when buying a home, factor in only one income, not two. Just in case an foreseen emergency in the future arises!!
Do You Dave Ramsey? says
This is the single best piece of advice anyone can ever hear, learn, and incorporate into their lives.
THE SINGLE BEST PIECE OF ADVICE!
I’ve heard fitness gurus praise the squat as the single best exercise because of how in calls so many muscles into play – legs, back, shoulders, core for balance, and it can have cardio vascular impacts as it can really get the blood flowing.
Buying a house when you can truely afford it does the same thing in our financial lives. What does it mean to truely afford something is a huge starting point. Debt reduction, emergency savings, downpayment savings, new house costs (furniture, maintenance, etc), budgeting, discipline, and spending prioritization are all brought into play.
Being about to buy a house when YOU can afford it is a simple and complex recipe for a lifetime of financial success.
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a few thoughts.. buying or owning a home is not a right. Some people (more than you think) can not afford a home and may never be able to afford one. Our sub-prime debacle is a perfect example of what happens when broke people buy homes. If you are debt free, have 6 months of expenses saved for emergencies, and can put 20% down on a 15 year fixed rate loan (20 years maybe but no longer), then you are in a good position to look for a home. Just don’t buy one that is too expensive. When people with no money buy homes, that is a recipe for trouble. Also, don’t get a home for the wrong reasons- like for a tax deduction. Going into debt for tax deductions is a bad idea