Financial Advisers Update Home-Buying Rules
by Broderick Perkins
Certified financial planners, financial advisers and the like say home buying isn't a solitary means to an end, but an integral part of a household's or family's overall financial needs, planning and goals.
Their more financially holistic approach to the transaction puts a different spin on home buying advice and sheds new light on achieving home ownership.
When business and personal finance writer and author Jill Andresky Fraser approached the issue of home buying, she didn't talk to real estate salespeople, mortgage brokers or lenders, as is often the case.
Instead, the business magazine editor and author of Business Owners Guide To Personal Finance: When Your Business Is Your Paycheck ($25.95, Bloomberg Press) and White Collar Sweatshop: The Deterioration of Work and Its Reward in Corporate America ($15.95, W.W. Norton & Co.) sought the advice of those whose business is to know all the angles in personal finance.
What she came up with were "5 New Rules For Buying A House," recently published by Child magazine.
The rules dispel the myths of what she calls "old-think" and provides insight on the "new-think" axioms for home buying.
Here's what she found:
Rule #1: Look Before You Leap
Old Approach: Common advice is that home prices have nowhere to go but up and the longer you wait the more you'll pay -- if you aren't priced out of the market.
New Approach: If you are too over-burdened financially to buy a home and take the "buy now" advice you could wind up bankrupt. Ignore the pressure, take a thorough look at your financial picture and pay off debt. Home ownership comes with many more costs than the monthly mortgage payment, property taxes and insurance. Renting, for now, could keep you in the black.
Rule #2: Skip The Starter Home
Old Approach: Begin small with affordable housing and move up later.
New Approach: Unless that smaller starter home is truly a great deal with room to expand, buy a home that fits your growing family now. After all, home prices have nowhere to go but up.
Rule #3: Get A 30-Year Fixed-Rate Mortgage (FRM)
Old Approach: Pay off your mortgage as quickly as possible.
New Approach: Long-term mortgages offer easier-to-budget fixed payments and payments that are lower than shorter-term FRMs. If you have extra cash along the way, you have the flexibility to make more payments against the principal.
Rule #4: Borrow A Financial Safety Net
Old Approach: Don't touch your equity unless there is an emergency.
New Approach: When an emergency hits you could be out of work and, with no visible means of support, your application for emergency cash likely will be declined. It's not necessary to use a home equity line of credit when you obtain it, but if you get it soon after your first mortgage you could reduce time, paperwork and the cost of the money. And it'll be there if you need it.
Rule #5: Browse For Housing
Old Approach: When searching for a home, you've got to see it to believe it.
New Approach: If you are just beginning your search, get on the Internet and save time, learn the market, get to know the neighborhoods and, in the end, become a more knowledgeable home shopper. You have plenty of time to beat the bushes and knowledge can be a strong negotiating point.
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