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OREGON REAL ESTATE AGENCY DISCLOSURE PAMPHLET |
| First Time Home Buyer? Let me Help. |
Are You Really Ready to Buy?
Consider the risks and rewards of homeownership.
In the short run, renting can make more financial sense than buying, in terms of how much shelter you can afford for a given price.
But the long-range view is different. Over time, rents tend to rise and is considered money thrown away essentially. On the other hand, if you have a fixed-rate mortgage the monthly payment of principal and interest stays the same. This relatively stable cost, combined with price appreciation and security, is what makes homeownership financially attractive in the long run.
Until the "long run" arrives, however, you may have to make some sacrifices as a homeowner.
You may have to put up with less space if you have to pay more to own a small home rather than to rent a larger one. To find a house you can afford, you might have to forego a few of your "must haves". Most first-time home buyers want a vast array of amenities with their first home, however, this may not be financially feasable but isn't worth loosing sight of. Compromises may be necessary.
Other risks and rewards to consider:
Reward: The power of leverage
Buying a home offers you the opportunity to magnify the purchasing power of your money through leverage.
Normally, you buy property with some of your own funds plus a long-term mortgage. That use of borrowed money enables you to profit from price increases on property you haven't yet paid for.
Using maximum leverage -- with a very small down payment and very large mortgage -- isn't prudent or advantageous for everone, but most first-time buyers will need all they can get just to open the door. It's also worth noting that there are government subsidized mortgage options which allow first-time home buyers to put little down and capture a reduced interest rate which not only lowers the monthly payment but also reduces the amount you pay over time significantly.
Reward: Appreciation
If your home is worth more when you sell it than when you bought it, that's appreciation. You can use the profit as a springboard to a better home. Or you can tap the equity (what your home would sell for minus what you owe on the mortgage) t pay college tuition, too buy a vacation hideaway, or turn it into a source of retirement funds. (See Downsizing)
Reward: Tax Breaks
Homeowners benefit from the tax deductibility of mortgage interest and property taxes and can keep up to $500,000 of gains when they sell.
Risk: A Decline in Value
The value of your home is not guaranteed to go up, and it could go down. The leverage that is so alluring when real estate values are on the rise can act to magnify losses as well as gains. However, if you plan to stay in your home for a long-term, this won't necessarilly affect you unless values remain low. Historically, more wealth has been gained through owning real estate than any other market.
Risk: Lost Opportunity
You lose, too, if you invest in a home money that could have been invested elsewhere for a better return. If alternative investments -- such as stocks or bonds -- are rising in value faster than homes in your area, you might do better, in the short run, as a renter/investor rather than a homeowner. Again, there are no guarantees and many risks involved in investing in stocks as well. This is where you should consider what is best for you and your family.
Risk: Maintenance
Homes cost money to maintain. You have to be prepared to pay for routine maintenance and for the inevitable replacement of big-ticket items. You can plan for these expences by starting a savings account and feeding it on a regular basis dedicated to funding unexpected expences involved in homeownership.
Risk: Reduced Flexibility
Homeowners have less freedom of movement; it's not easy to pack up and move for a change of scenery or a new job. Real estate is not a liquid asset. You can lose if you have to sell in a hurry -- because of a divorce or job loss, for example. A hefty mortgage payment may make it hard to maintain savings and investment programs for retirement, vacations and other things. This is where your decision to find an affordable home and give up some of the "must haves" will pay off.
If after weighing all of this you're still seeking homeownership, then it's time to take a close look at your finances.
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