Monday, March 8, 2010

Buy a House When You Can Afford One, Not Before

I just read yet another article about tightened lending standards, and how they could mean potential home buyers would have to come up with 10% as a down payment. The article went on to describe ways to circumvent the new standard.

Are people crazy? Sure, it’s a great time to buy, if you have several hundred thousand dollars in the bank that you will never need for anything else. Otherwise, this is a very risky time to buy, despite it being a buyer’s market and the rates being low, and hype, hype, hype.

If you can’t afford even a down payment for a house, why are you trying to buy a house?

For stability, right? So no landlord can toss you out on your ear. But a bank can do it, too, if you can’t pay your mortgage. People are being foreclosed on all across the country. What makes you think that you can beat the odds if you don’t have enough cash to begin with?

Trust me, I’ve been there. Before we bought our first house, we didn’t have the 10% down payment, either. So we put our furniture in cheap storage and went to live with relatives for a year. Five people had to share one bathroom and two people had to sleep in a basement, but at the end of the year we had our down payment. We thought we had it made. A year later, we were already in debt because of unanticipated but necessary purchases for the new house. The lawn has to be mowed whether you have the cash for a mower or not. And garbage cans really are not optional. You get the idea: Owning a house is more expensive than apartment living. Great big duh.

If you can’t even afford a down payment for a house, why do you think you can manage the day-to-day carrying costs of owning a house?

And then someone lost a job. There was no money to pay the mortgage until a new job was found. When the new job was found, it did not pay anywhere near as much as the old job. Welcome to the new reality for American workers.

If you can’t even afford a down payment for a house, and you don’t have the extra cash for the carrying costs, and then you lose your job, you will lose the house or go deeply into debt, or both.

Put your planned mortgage payment, plus 30% more, into a savings account and attempt to live on what remains. If you can’t, then you can’t afford to buy a house, down payment or no down payment. When employment was stable and lifelong, you could buy a house you could barely afford and gamble that it would become affordable as your income went up. Today, that’s a sucker bet.

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