Homeownership shouldn't be a financial nightmare
By Chelle Cordero
Creators News Service
Often called "the American dream," home ownership has been both a source of satisfaction and consternation for many. Potential buyers wish for financial rewards on their investment along with the pride of owning property.
When the math works, the investment does too - but when it's off, the losses can be significant. Finding the ideal place and being able to afford it can be a challenge.
"Buying a home is the single largest financial decision most will ever make. The important thing is to slow down and fully understand the ramifications of your decision to short term cash flow needs as well as being mindful of long-term retirement planning," said Dave Muti, a senior mortgage planner, registered mortgage advisor and author in Parsippany, N.J. "You should start with a mortgage planner to determine your actual buying power and set a plan in motion. Then you go out and shop for a home that is no more than three times your household income, which should ensure that your debt-to-income ratio is below 28."
In the past, affordability was tricky. "Banks typically require 20 percent down.... The problem is that as homes became more expensive, it became unrealistic for some to come up with that type of cash," said Eric Witczak, senior vice president and retail banking manager at Nicolet National Bank in Wisconsin.
Today, prices are going down - however, don't settle for just any mortgage. "The zero [or little] down programs most often result in higher rates and higher fees," he cautioned. "The fees will more than likely be added to the mortgage. This, in turn, makes it nearly impossible to gain any equity, and often results in negative equity."
Due to the current housing crisis, there is less opportunity to put small down payments on a purchase. "You are better off continuing to rent rather than purchase a home if you have less than five percent down," said Witczak. "Lenders look more favorably on lending people money when they have real equity into the collateral. A person is more likely to make their payments when they have real money invested.
"Living within our means, and having real equity in our assets will take us a long way during tough economic times. I'm all for home ownership, but I also believe that renting is a great alternative until you've built up a nest egg for a down payment. It will save you thousands of dollars in the long run."
While there are substantial pluses to owning, experts in the field of real estate and mortgaging agree that education is crucial. After determining the type of place that interests you, investigate what it is worth in the neighborhoods you would consider by comparing the home to other recent sales.
Learn what your closing costs will be beyond the sale price - this can include inspections, title insurance and recording fees. In addition to moving expenses and property insurance, be prepared for maintenance and any other modifications you may need to make before living in the house; this is critical in an older home, where repairs might also be necessary.
No matter what, you should determine what you can afford. "Before you even walk into an open house, call when passing a 'for sale' sign or contact a realtor, call a reputable mortgage broker," said Janice B. Leis, associate broker with Prudential in Pennsylvania, Florida, and New Jersey. "They will run credit. All my clients are told to submit all documentation, such as tax returns, w-9s, 1099s, whatever is necessary. They will tell you exactly what you can afford, how to keep your status clean and substantial and what exactly is needed financially with down monies and closing costs. Listen carefully and all will be well."
© 2009 CREATORS NEWS SERVICE