Our Archive of Articles About Financial Literacy and Other Topics
Buying A House Is A Business Decision
March 10, 2008, 2:56 pm
Housing & Mortgage article on the business side of homebuying.
For most people, buying a house is the most important financial transaction they will ever participate in. It’s the most expensive object the average consumer buys, with the longest loan commitment. For too many homebuyers, however, they base decisions on emotions, ignoring facts and financial realities.
When you’re buying a home, the very last thing you should do is allow your emotions to get wrapped up in the decision. So before talking to the real estate agent, prepare yourself mentally for the discussion. Remind yourself that you are about to enter into a business negotiation process. And don’t let yourself “fall in love” with the house you’re looking at. A good way to avoid this is to remind yourself that, as much as you may love a particular house, it isn’t the only nice house on the market, so you shouldn’t compromise your financial needs to buy it.
An important part of your preparation is to know what your financial needs are. Before you even talk to a real estate agent, sit down with your bills and determine an exact amount of what you can afford. If you’re renting an apartment, figure out how much more than your current rent you can afford to take on.
Once you get into the buying process, do not exceed what you determined to be your maximum monthly payment. Otherwise, you may find yourself overextended, and unable to pay all your bills.
Keeping your business wits about you when buying a house requires you to approach the process like a wealthy person. If you think about it, wealthy people get that way because they understand how money works and are careful with it. So it’s a good idea to copy their strategies. And the most important thing they accomplish, that other people don’t, is they separate their emotions from business transactions. To the wealthy, buying a house is a financial decision.
Other home buying strategies you can borrow from wealthy people include:
Hiring a lawyer. Remember, real estate agents are trained to sell real estate, and loan officers are trained to process loans. Lawyers are trained to practice law. And for a couple hundred dollars, you can find one who will read your sales contract and make sure it keeps your best interests in mind.
Hiring your own inspectors. While every real estate sale requires a basic home inspection, they aren’t very thorough. Because they are required by the mortgage lender, the main purpose of this inspection is to make sure the bank’s interests are protected. By hiring an independent home inspector, you’ll be making sure your interests are protected as well.
Considering different types of loans. A lot of homebuyers jump straight for the 30-year fixed-interest mortgage. Again, this is an emotional reaction by people who fear the possibility that their house payment will go too high with an adjustable-rate loan. However, depending on the rates, an ARM may be the right decision, especially if you only plan to stay in a house for five to seven years. And keep in mind that, with an ARM, you usually don’t need as much income to qualify. Also, if you can afford the higher payment, you may want to consider a 15- or 20-year mortgage, because your interest rate will be lower, and you’ll pay less for the home in the long run.
About Springboard Nonprofit Consumer Credit Management
Springboard is a nonprofit credit education and financial counseling organization founded in 1974. The agency offers personal financial education and assistance with money, credit and debt management through confidential counseling. Springboard is accredited by the Council on Accreditation, signifying high standards for agency governance, fiscal integrity, counselor certification and service delivery policies. The agency provides pre-bankruptcy counseling and debtor education as mandated by the bankruptcy reform law. Springboard is a HUD approved housing counseling agency and a member of the National Foundation for Credit Counseling, a national organization of nonprofit credit counseling agencies. The agency has several locations in California and offers face-to-face and nationwide phone counseling services. For more information on Springboard, call 1-800 WISE PLAN (1-800-947-3752) ext. 7750 or visit their web site at www.credit.org.
