Overspending – Should you buy a home now?

So often we hear the credit card companies or businesses advertising a low interest rate or no payment for 1 year, and many people buy into it.  I think what has been forgotten is how to save money and how to spend money.  I know, this seems like a simple topic, but I think in a spending age, it is one that is forgotten. 

Not too long ago, people did not even buy homes unless they had the cash to do it.  In fact, it was not uncommon for people not to have a mortgage.  A few years ago, the banks were advertising mortgage programs for 100% financing.  I remember we were trying to sell our home at the time, and it was a seller’s market.  The interest rates were low and everyone could get a mortgage.  We got some really interesting contracts on our home, many of which were 95-100% financing.  Now, I am not a financial expert, just a mom with a lot of kids and a budget to maintain, but this idea seemed risky to me.  We were even told about some really strange mortgage options if our home did not sell.  Three year arms, adjustable rates, bridge loans, interest payment only loans…it was enough to make my head spin.  Common sense told me that a 30 year fixed was the only safe way to have a mortgage.  I could not guarantee what would happen in three years, let alone three days.  What was important to me was to decide on a budget which would be realistic for our family, and stick to it.

I will say it again, I am not a financial person,  just a mom.  I have seen friends lose their homes with strange mortgages and we all are hearing about the high foreclosure rates.  People were allowed to take out loans which they could not realistically pay.  I still cannot understand why this happened, but it did, and now our country is in a financial crisis.

I am not writing this to point fingers or solve any economic problems.  I simply want to point out a few things to consider before jumping into a new home with a mortgage.  So, before you decide to move, here are a few things to consider:

• Find out what the property taxes will be in the community you will be moving to.  Property taxes in my area range from 1.8 – 3.2% of the value of the home.  Think that won’t affect your mortgage too much?  On a home worth $200,000 that could mean the difference between paying $3600 or $6400 per year or $360/month  to $533/month in escrow for your taxes.  That is quite a large difference in payment, especially if you are on a tight budget.
• Don’t forget to include homeowners insurance as part of your escrow.  Personally, I think I pay around $1000/year, which translates out to about $83/month.
• Ask the current homeowner what their monthly utility bills are.  This could make or break your budget.   In an energy-efficient home, your bills may be just fine, but what if the home is not very efficient?  Your natural gas bill could range anywhere between $75-$500 in the winter, depending on the home.  If you are thinking your bill will only be $100/mo and it turns out to be $250, where will you come up with the extra $150?
• Make a budget of any other household expenses which you will need to pay.  If you are coming from an apartment to a home, there will be a lot more expenses to consider – garbage, water, utilities etc.  Listing your budget and analyzing your financial situation is crucial before deciding if it is the right time to move.
• Consider job security.  Many people will laugh when I say this, but do this to the best of your ability.  Do you see yourself in a stable work environment?  Is there a possibility that you will be losing your job?  If so, now is not the right time to take on any higher bills.
• Never get a mortgage based on a future pay increase.  If you are not making the money now, there is no guarantee you will make it in the future.
• If you are in a home now considering a move, plan on the costs of selling your current home.  You need to plan on the realtors’ costs and closing costs.  You may need to pay out escrow taxes too.  This adds up and can be the difference between whether you can really afford to move.
• Plan on the moving costs.  Are you moving nearby or is it an out of state move.  Moving costs vary significantly and can range from just the cost of renting a truck and doing it yourself, to thousands of dollars.  It really depends on the amount you are moving, if you are contracting a moving company and the distance you are moving.

So, in an age where getting it now and paying for it later is the motto, we need to have a reality check every once in awhile.  The current state of our banks, car dealerships and home foreclosures says it all.  It is time for people to go back to analzying, budgeting and saving money.  It is smart to say no to merchandise we cannot afford…..But that is another topic for a different day.

Until then, spend wisely and save for tomorrow!