Q & A: Should I buy a house?
My husband and I are living in a small townhouse and we’re debating whether we should buy a house. Together, we earn six figures. From the sale of my previous house, I have saved $100,000 that I want to use for a down payment. But my husband is afraid. He does not want to commit to a larger mortgage right now because he is concerned about the overall economy and the possibility that one of us could lose our income if we got laid off. My feeling is that our financial position is strong. My car is paid off and I have no credit card debt and neither does my husband. He’s supporting one child in college. My only bill is a $7,000 student loan. What should we do? I feel this new home would be an incredible investment.
Here are two ideas that may surprise you: You’re assuming you know something that no one can know. And, price is just one part of picking a home.
Let me explain:
You can’t pick the rock-bottom of the housing market or the stock market or anything else. You won’t know until the bottom has been hit and prices begin to bounce up. A house becomes “an incredible investment:” only if you bought low.
But first, lets' get specific.You plan is to take on double the mortgage debt that you have now. You need far more information than just the home price before you decide to act on that plan.
“The smart answer is that there’s a lot of work involved,” said Certified Financial Planner Steve Pomeranz of Pomeranz Financial Management in Boca Raton. . “Fortunately, you can calculate this type of answer.”
Figure out not just the price and the potential mortgage payment, but realize that your property tax bill will go up along with your homeowners insurance premium. Do a “worst case” scenario to see what you could afford if you or your husband lost a job.
Next let’s talk about your cash situation. You have enough to make a substantial down payment. But my concern is, that’s all you have. If you bought this house and a pipe inside broke, it doesn’t sound like you have anything else to handle emergencies. If you buy double the house you have now, the problems that arise will be more expensive than you may expect. “The big issue is what is your overhead going to be relative to your income,” Pomeranz said. “Are you going to be house poor?”
And finally, you have to make this decision based on peace in your home with your husband, which is just as important as the well-established idea that owning a house is a great way to build wealth. At least, that's how it works under normal circumstances.The housing market has been anything but normal for the last couple of years.
There’s no reason to think it will stay this way forever. Just choose carefully, budget very specifically and you’ll come out okay.
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