Thursday, September 22, 2011 / by Ira Miskin
Buying the right home for your current and future needs is still, long term, one of the best investments you can make. Over the last thirty years, the recession and housing downturn we are experiencing is the third and certainly not the last. Still, over the last 30 years, home values have appreciated many-fold over their original market value. One difference this time around is the way many recent buyers viewed and used their properties. Their vision of its value was short term, even though the mortgage contracts they entered into had long-term payback life spans. True, lots of buyers using sub-prime loan vehicles were under-qualified and over-bought. But many also viewed their home as a short term investment that would continue to rise in value and which they could both use as leverage to move up to a bigger, more valuable property, and also as a way of using untapped resources to buy other non-real estate items.
Sometimes the equity in your home can be a valuable asset for special or emergency needs. But when choosing a Realtor and their Team to help you find the home that feels right at a great price, be sure they are advising you on how to evaluate the property for its long term economic return on your investment. Return on investment? Yes, return on investment.
With the exception of a few 100% loan programs still available such as VA loans for qualified military members and vets, these days a Buyer will be required to provide a minimum of 3.5% of the sale price as a down payment for their loan using an FHA loan vehicle. Many lenders require no less than 5% and as much as 20% down for your home loan purchase. For buyers (and some real estate professionals who jumped into the market when it was red hot) who thought the previous easy money hey-day of home buying was the norm, it was not that long ago when lenders, as in todays market, required borrowers to prove stable employment, have a debt to income ratio that was stronger on the income side, and had 10% - 20% down payment money available plus a cushion to support their purchase. Loans were for 15 or 30 years. No tricky mortgages. And even then, not everyone qualified for a home loan.
My parents saved for a decade in order to have the 20% down payment required. They purchased their home in 1964 for $29,000 and bought it intending to stay there until the loan was paid off. They paid a little extra each month and paid it off in 22 years. They stayed in the home for nearly forty years and sold it, thanks to normal inflation for over $500 thousand dollars. They never borrowed any money using their homes equity as collateral. They intended to keep it until they needed to sell it to aid in their retirement and worked to keep it in good condition and fairly well updated. They kept up with their neighborhood association that helped manage the neighborhoods home-values by encouraging all the homeowners to keep their properties in good condition. They viewed their home as the place to build a life and raise their family, a property they carefully considered before purchasing, believing they would be living there for many years to come. It was a long-term economic investment. They never used it to finance a new car, or vacations, or redecorating. Even in tough times they stubbornly avoided encumbering their long term investment with unnecessary debt.
Your home purchase should be a happy event. Buying the right home for a great price is a great goal. Be sure that when developing your criteria for finding your new home, you let your Realtor know this is not just a short term deal, but a serious economic investment as well. Finding the right home at the best price with a long term outlook can make your home purchase the best investment you can make.
Your home will become a valuable asset over time. Dont use it like an ATM.
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