Chapter 4: A Home of My Own (Part 5)
Posted by Gail | Filed under Money Rules
I wrapped my hands around the mug of tea Jason handed me and breathed deeply. “Oh, this smells divine.”
“I thought you would like that,” he said as we settled back at the table.
“So, are you using this home as a way to get into the market, or are you following Gail Rule #193: Buy and stay put?”
“I need a place big enough for the kids now, so I figure I’m in this for the long term.”
“Good. That’s going to serve you in a whole bunch of ways.”
When Less is More
Lenders and real estate agents are in the business of convincing you that you should spring for the extra and buy that fabulous home you fell in love with. Sure, it’ll be a little tighter on your budget, but they can come up with about a dozen reasons why it’s a good idea. The one they won’t say out loud – though it’ll be running around in their brains – is this: you’ll be way more profitable for me!
Don’t step into the poop.
Here are 5 reasons why you should buy less home than you can actually afford, and far less home than your lender will tell you that you can afford.
1. You can’t assume property values will always go up. Yes, they’ll go up sometimes. But sometimes they’ll go down. And if they are down just when you need to sell, you’ll have had a good place to live, but the “investment” part of the equation won’t have paid off.
2. You could lose your job. Most big home purchases are based on the income of both breadwinners. If one or t’other of you lost your job, had your hours cut, got sick… yuck… would you be able to stay in that home? If the answer is no, it’s too much home.
3. A more expensive home means higher selling costs. Agents have reaped huge rewards as home prices have skyrocketed. Takes the same amount of time and effort to sell the $300,000 home that’s gone to $600,000, but the rewards are double.
4. Home-maintenance and carrying costs are going up. Do you really want to heat 3,500 sq ft? Do you want to turn on 12 pot-lights at the flick of a switch? How much with the property taxes be on that bigger home? How about the insurance premiums? My Little House in the country cost me almost $1,000 a month to carry everything in, but no mortgage. And it’s a very efficient R2000 home.
5. Wouldn’t you like to be mortgage free so you can spend your money on other stuff? Eliminate the mortgage payment quickly and you’ll have money for the future and for the present.
“I guess I only have one more question,” said Jason.
“And that is?” I asked.
“I was wondering what your thoughts were on taking a line of credit on my house. I’m going in with 20% equity after all.”
“And what would you use that line for?”
“I’m thinking as an emergency fund. Y’know, just in case the worst does happen.”
“OMG!” I said, throwing up my arms. “I’m sorry Jason, but if I had a nickel for every time I heard some lender tell some poor sucker that a line of credit makes a great emergency fund, I’d be able to buy Sasketchewan!”
“So I take it you don’t think it’s a good idea?” Jason asked grinning at me like a Cheshire Cat.
“Are you just pulling my chain?” I asked.
“Well, the lender did suggest it, and I wanted to know what you thought.”
“Here,” I said, handing him a couple of pages, “read this while I kiss the kids goodbye and grab my coat.” I handed him Rule #256: A Line of Credit is NOT an Emergency Fund.
As I headed down the walkway to my car I turned to see the three of them standing in the doorway waving to me. I waved back. “Don’t go shopping for a home alone,” I shouted to Jason. “And make sue you take pictures and notes.”
“Or you could just come with me…” he laughed.
“Nope,” I laughed too. “You’re a smart boy. You’ll do fine.”
The Do’s and Don’ts of Home Shopping
You’ve been diligently planning to buy a home of your own. You’ve figured out what kind of home you’d like, saved some money for a downpayment, and talked to friends and family about what to expect as a homeowner. Now it’s time to go shopping. Yeah, the fun part! Here are some do’s and don’ts to keep in mind.
Do Shop with a Friend. If you shop alone you run the risk of not seeing all sides of the equation. Another set of eyes can be priceless when it comes to noticing the small details that can affect your decision.
Don’t Arrive Late for a viewing. The last thing you want to do is rush through your home tour. And you don’t want to run into other home-buyers because that might push you to do something stupid like getting involved in a bidding war. No house is worth going into more debt than you can afford to carry comfortably.
Do Take Photos and Notes. If you’re relying on your memory you’ll soon find that all the properties you’ve viewed start running together. Take a notebook, note the address and some of the details of the property, and take lots of pictures. Later, if you have questions about a particular property, you can note them on that property’s page in your notebook.
Don’t Focus on the Clutter. Most sellers now know to clean up and clear out. But there are still families that have to live in the homes they are selling, particularly ones with kids. Don’t focus on the stuff. Imagine the rooms empty. And remember that paint is cheap!
Do Go Back and Look Again. Once you’ve short-listed the properties you like, go back for a second round of note- and picture-taking. Now you’re weighing characteristics of one home against another to find the perfect fit. Try to go at another time of day from your initial viewing so that you can see the property (and the surrounding areas) in a different light, literally.
Don’t Ignore Details. Transportation, parking, neighbours, shopping, schools, churches, where the sun rises and sets, traffic patterns, they’ll all have an impact on your life in your new home. Don’t brush them aside in favour of a fabulous kitchen or a spa-like bathroom. Yes, the features of the home are important, but so is the area in which you live and the amenities available.
Do Have a List of Questions. In the excitement of the moment, it can be easy to forget important questions you want to ask about a property: What does it cost a month to heat? What’s the traffic like in the area? Where is the closest grocery store? Have there been mould, termite or foundation leakage problems? Write down a list of whatever you want to know so you can make a sound decision. Then ask those questions and note the answers consistently at each viewing.