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Can I
Afford to Buy A Home?
by Ellise Walsh
It has been hard to miss housing
boom that has been happening over the past couple of years. With interest
rates at historic lows, more and more former tenants are taking the plunge and
becoming homeowners. Anyone who is not a homeowner is sure to wonder whether
or not they are missing out on the greatest thing since sliced bread.
While it is true that home ownership can be an excellent way to build your
asset base and benefit through home and land appreciation, it is absolutely
vital to take an honest look at your finances and determine if you can really
afford to buy a home. Before you rush off to join the ever growing cadre of
homeowners, take some time to examine home ownership from the outside and
decide if you are ready for this major financial commitment.
One of the biggest obstacles to home ownership is the down payment. A down
payment requirement of 20% used to be standard, but these days many mortgage
lenders are willing to accept 10%, 5% or even no money down on a mortgage.
While a zero money down mortgage may seem like a good idea, it is really one
of the worst deals around. Not only will taking out a mortgage for 100% of the
home’s purchase price mean you will be paying interest on that amount, it will
also substantially increase your monthly payments.
Buying a home with no down payment also opens you up to major financial
problems if the value of your home decreases. While the housing boom that we
have seen in recent years has led home shoppers to the conclusion that home
prices can only rise, nothing could be further from the truth. There have been
significant periods of time in which home prices were stagnant or falling.
Buying a home with a small down payment or none at all means that you could be
in the untenable position of owing more than the home is worth.
It is important to think of the down payment as an integral part of the
mortgage. Saving money for a down payment is not an easy task, but it is
important to put as much down on your home as you possibly can. Remember, the
bigger the down payment you can make, the smaller your monthly payments will
be.
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