Culture of Life
BY Phil Lenahan
July 26-August 8, 2009 Issue | Posted 7/17/09 at 4:31 PM
We’re a young family looking to buy our first house. Do you have any ideas that will help us make a good financial decision? We’re especially concerned about the crazy state of the housing market right now.
First of all, take the long view. While a house will be the biggest purchase most of us make, and will probably be one of the largest assets we own during our lifetime, remember: Its real value is as a home to raise your family in. Don’t buy a house as a way to “get rich quick.”
Most economists expect housing prices to continue falling a bit more before stabilizing — maybe another 10% or so. And even when prices stop falling, there is no sense that they will resume a rapid increase anytime soon. Robert Schiller, a Yale economist and one of the creators of the S&P/Case-Shiller Home-Price Index, recently said there could be another boom — “but, if so, it likely won’t happen for another five to 10 years.”
Because prices are expected to remain soft, you shouldn’t feel rushed. Sacred Scripture encourages us to get our house in order before we buy (no pun intended!). Proverbs 24:27 says, “Prepare your work outside, get everything ready for you in the field; and after that build your house.” What does this mean for today’s housing environment?
You’ll want to be confident that your family and job situations are stable enough to justify making a purchase. If you question whether you’ll be in the home for at least five years, I’d hold off on buying until your situation becomes clearer. There is no harm in renting, given the softness of the market. There are substantial costs related to both buying and selling a home. In today’s environment, you’ll want to spread those costs out over many years.
When considering how much home to buy, make sure you aren’t stretching yourself too thin. It’s a problem I often see: people buying more home than they can truly afford. As family responsibilities increase, housing expenses drain the budget more than anticipated. Keeping housing expenses (including payment, taxes, insurance, utilities, improvements and gardening) to between 30% and 35% of your gross income is a good guideline.
While financing has certainly tightened over the last couple of years, mortgage rates continue to be at historically low levels. As I write, they are running about 5.3%. In today’s environment, you’ll probably need a Fico (credit) score of 720 or better and be in a position to make at least a 10% down payment if you are going to qualify for the best financing terms.
I’m pleased to see that, generally speaking, lenders are requiring more substantial down payments. I realize that, at the individual level, it makes it harder for a person to buy a home, but we’ve seen the damage that lax lending terms can do to the broader economy. I think requiring a bit more “skin” in the game is a good thing.
Finally, now is a good time to take advantage of the government’s credit for first-time home buyers (up to $8,000) and discount programs offered by home builders. Given the combination of low prices, low interest rates and government incentives, it’s a good time to consider a home purchase — as long as you’ve done the preparation work described in Proverbs 24:27.
God love you!
Phil Lenahan is online at
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