Purchasing a home is one of the fundamental desires of most people. It will likely be the biggest purchase you will make in your lifetime.
However, our homes are more than just financial assets and they are more than just places to live. Our homes are personal. They are integral parts of how we see ourselves in the world socially and financially. You rarely make the choice based on future investment value. You are not just buying a house, you are building a life for your family.
Owning a home projects a sense of responsibility and implied investment in the neighbourhood you have settled down in. Where we choose to live becomes part of who we are and can determine much of our levels of happiness, fulfillment and feelings of success and accomplishment.
We all know which neighbourhoods are more or less desirable in our cities and towns.
Have you ever met someone new and made a judgment about them based on where they live? You may imagine a couple from Diamondville is more successful than the one from Dustytown when the exact opposite might be true.
Movin’ on up!
If you’ve ever played the board game, The Game of Life, you will recall that on the player’s life path he or she buys a little house, fills up the car with children pegs, then goes on to buy a bigger house.
As in the game, it used to be that people would buy a small starter home and, several years down the road, use the equity to purchase a bigger home to fit the expanding family and perhaps add a few semi-luxury amenities.
Related: Home buyer’s regret?
Now that the age of first time homebuyers has increased (average age is 36 according to MoneySense magazine) it’s more likely that they will want a larger home right away, and more upscale finishes are more desirable. We want our home to be a showcase.
You visit some show homes and you want every detail featured. How do you keep emotions from hindering your good judgment when optimism and excitement are high?
Don’t fall in love with a house that’s too expensive. Don’t even look at homes outside your price range. Many people fantasize about their dream home, but it’s more important to have what you need, not what you want. Use a list to prioritize. Don’t get sidetracked by the amazing wall fountain or the funky light fixtures.
You may realize the dream house you originally had in mind is, well, unattainable.
Look beyond the aspects you adore and ask yourself if the entire house is the right fit for you with respect to size, layout and neighbourhood. You can always make changes later on.
This desire to buy a bigger, better house is often exploited by lenders. They are all too willing to approve a high mortgage amount. You should ask yourself, “How much can I borrow?” That’s not the same as, “How much should I borrow?”
Related: Non-traditional ways to buy a house
Should you save up a 20% down payment, or, in a rising market, buy sooner with only 5-10% down?
People take pride in negotiating the lowest mortgage interest rates and debate the merits of fixed and variable. But the question is, “Can you manage if interest rates go up?”
Prepaying the mortgage is desirable to many. But, most of the time, over 10 years or more, investing in the stock market is a better deal. The cost of prepaying the mortgage gets higher the lower the interest rate is on your mortgage.
However, some people feel more secure if they are mortgage free – after all, having no mortgage payment feels very liberating.
Is home ownership really for you?
When should you buy a home? Aside from the current economy, interest rates, and house prices, you should ask yourself if it is what your really want. Is it possible for you?
Low mortgage rates and rising housing costs can lead some people to dive into home ownership more quickly than they had originally planned.
Related: Owning your home vs. renting
Have you heard the comment, “Renting is just like flushing your money down the drain?” Public, or family, pressure may cause someone to buy when they are not ready. Young people today are often more mobile than in the past and for them, renting makes much more financial sense. Don’t be pressured into making the wrong decision, which can result in buyer’s remorse.