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Reclaiming the American Dream

In generations past, home ownership was a goal sought after by most families.

Owning your own home with a yard, a picket fence, maybe a front porch is a cornerstone of the American dream. And building equity provided a path to the middle class, a way to finance college for the kids and build a nest egg for retirement. A home would be the single biggest investment we’d probably make in our lifetimes. One mortgage crisis later and many people’s dreams lie shuttered in foreclosure or in upside-down mortgages, which caused a lot of people to reconsider renting as more than a stop gap. With the recent challenges the real estate market have had, is home ownership still the American dream?

Most people bought homes within their means, with the intention of staying long term and paying off their mortgage in full. Home buying then became sport for many who purchased in hopes of turning a quick profit in a short amount of time. In many places, one could gain huge amounts of equity seemingly overnight. Times have definitely changed, and the benefits of home ownership have remained strong and compelling, but many people still have questions.

Is buying a home for me? With the possibility of job loss and the reality of tight budgets, I’m afraid to commit to buying a home!

Home ownership is generally a good financial decision. The tax savings are huge. At the beginning of a mortgage, most of the payment goes to interest, which is tax deductible, in effect saving you money even if your house payment exceeds the amount you’d pay in rent. Another benefit is the stability of a mortgage payment. Over time, rent is sure to increase with inflation. With a 30-year fixed loan, payments will remain stable over time, with the exception of insurance and taxes. Mortgages are also a forced savings account. This money is going back in to your pocket as equity instead of in to the pocket of your landlord.

I know lending guidelines have changed. Can I even get a loan now?

Yes, the way banks loan money has changed, but there are still some great programs out there for first-time and repeat buyers. The underwriting process is more stringent with the ups and downs of the economy, but a responsible borrower searching for homes within their means can secure a loan. For more rural locations outside of city limits, USDA offers financing up to 100 percent loan to value. FHA loans continue to be a great program, especially for first-time buyers, with low down payments and less restrictive guidelines. Shyann Eckel of the Legacy Group says, “These are good programs and home ownership is still sought after. In today’s market, I’m more concerned with the entire investment a borrower is making. We look at both long-term and short-term pros and cons. Home ownership is a commitment and much more than just an investment. It is important that a homeowner is knowledgeable about both the benefits and the consequences of owning rather than renting. We have to look at all angles.”

Do I want to buy now? Have home prices really bottomed out?

Timing the bottom of the market can be risky business. While everyone wants to get the best possible deal on a new home, waiting too long to buy in such an opportune time can end up costing a ton of money in the long run. For example, a $300,000 home with 3.5 percent down and five percent interest rate would result in a monthly payment of $1,554.11. Saving $10,000 on the same home would result in payment of $1,502.30. On the other hand, trying to time “the bottom” can backfire. Getting the same $10,000 deal on that home, but not accounting for the low, but rising, interest rates can mean a higher monthly payment. At six percent interest, that same home could cost $1,677.84 per month, costing over $60,000 more over the life of the loan. It’s important to look at the big picture when timing a home purchase.

In addition to financial motivations, personal preference remains the biggest factor in making the decision to buy a home. Coming home every night to a place you love, having the freedom to live within your own walls and be the “master of your castle” and maintaining your privacy are priceless. FBN

 

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