It is probably not new to you that given the condition of the real estate and mortgage industries over the past year housing prices have been going down in many parts of the US. Also, given the not so rosy reports on the US economy and housing markets, it looks as though the housing downturn will continue for some time to come. With this in mind, many folks are asking the question: “When should I look to buy a home?”
I get asked this question as a mortgage broker all the time. Of course I do not have a crystal ball, but I do have some considerations for you to help guide your thinking process. The place to start looking at whether you should buy or not is: what are you buying the home for?
I want to buy a home, the top 3 reasons
As an individual consumer looking to purchase residential real estate you could have one of many reasons to purchase a property. I am going to cover 3 reasons in this article, and suggest some thoughts on purchasing prospects for each reason. These three reasons are: you are buying a home to live in it yourself, you are buying a home for a rental investment property, or you are looking for a property to fix and flip.
Buying a Home To Live In
If you are buying a home to live in and it is your dream home, then you might want to consider buying now. Why? Well, as prices continue to fall, the “nice” houses are likely to get scooped up by larger corporate investors leaving houses that require more rehabilitation left for you to choose from. Buying a home in the future that requires home improvements will only add to your expense which could prevent you from being able to buy when you find something you like in the future.
Housing prices are going to come back so you need not worry about what my home is worth if you are living in it and planning to stay there for awhile. Make sure that whatever financing you get ends up giving you the housing payment you can afford over the long haul. In other words, do not take out an adjustable rate mortgage with a better interest rate on the hopes of refinancing in the near future. This is one of the major reasons for the housing market decline and people losing their homes – they took out loans that they knew they had to refinance in the short term because of the advantageous interest rates and now cannot refinance due to declining property values. Look into more stable mortgage loan programs like a 30 year fixed rate mortgage where you pay principle and interest, or where you pay interest only for 10 years or more. Both of these loan programs are very stable and conservative. It is hard to go wrong with a 30 year fixed rate mortgage.
Buying Real Estate for Rental Income and Tax Writeoff
The next possibility for why you are looking to buy a property is to have a rental investment. While is it a great idea to have rental property as many of the real estate and wealth gurus like Robert Kiyosaki (in Rich Dad, Poor Dad) suggest. It is important to know where, when and how to buy rental property to make it a smart investment and to keep yourself out of trouble.
Here are some additional considerations for you to think about: what is the likelihood of being able to rent the property after I purchase it. What it is the neighborhood like - is it declining, improving? What are the typical rental rates in this neighborhood? Does the rent cover the mortgage payment? If the rent does not cover the mortgage payment, do I have enough resources to make the mortgage payment over an extended period of time (several years for example)?
If you are unsure of these questions, you should probably do some looking around and find several real estate property management companies to talk to about the market conditions in the neighborhood you are looking to purchase in. Bottom line, do your homework really well. Make sure you have the funds to cover the mortgage, taxes, insurance and maintenance costs over time, you could be the one making the payments. If you do not have the resources to go it alone on the payments you might want to pursue other investment opportunities.
Fix and Flip Properties
Finally, the last reason you might want to purchase some real estate is to fix and flip the property. For those of you who do not know what this is, it is simply buying a property for a low price that needs repairs. You do the repairs which improve the value of the property and then sell it as soon as you can to make a profit. While this is a great way to make some cash, it is also a great way to get stuck and lose a lot of money. This is especially true in a declining market where properties are not selling that quickly and there are a lot of homes for sale.
Your hope for a quick return on your time and money could quickly be squashed by not being able to sell the home right away. You could get stuck with your money being spent and no way in the immediate future to get it back. If you are looking to fix and flip a property and you cannot afford to carry the property for perhaps a couple of years or more, then you probably ought to seek other ways to invest your money.
Hopefully with the information found in this article you can begin to make some decisions about buying real estate if you are an individual consumer. One rule of thumb to always remember is: trust your gut. If you think it feels off, then chances are it is. Do not force the issue. Good luck!
Article written by Dale Stouffer, Mortgage Broker. Dale has been a mortgage broker since 1996.
This Article is designed to be of general interest and should not be considered legal advice. The specific information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser.
