Your Dream Home Should Not Be Your First
Many years ago, young families were encouraged to start out with and buy a “starter home.” Today, more than half the population are home owners. The mentality now is that buying a house is the “American Dream.” Attitudes about how to buy a home have gone up and down as much as interest rates during the decades since World War II, and most first-time home buyers have been encouraged to “buy big,” in order to stretch their budgets as much as possible, and buy the home they wanted to live in forever.
Given the high level of foreclosures and the loss of value in many homes, today’s buyers are more wary of taking on a home they cannot afford, but many are still tempted to make their first home purchase their dream home rather than their starter home.
A recent survey of real estate brokers revealed that while affordability was the number one concern of first-time home buyers, 81% of those buyers consider move-in conditions very important when moving into a home. Only 7% were considering buying a fixer-upper. But, this could spell trouble for first-time home buyers. The recent economy should give people pause for four main reasons:
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Rising prices, while hard on the household budget, usually came along with substantial annual raises. These days, home buyers cannot count on a significant raise to make their housing payments easier to handle.
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Once upon a time, when more families had a single wage earner, the other spouse could go to work to pay for the house if they were in financial trouble. Today, most households have two workers and that double income is needed to make the mortgage payment. Consider trying to base your budget on one income or perhaps one and one-half an income to make sure your housing payment will still be affordable if one spouse stops working.
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Thirty years ago, it was very difficult to qualify for a loan for more than was easily affordable, but as lending practices changed, mortgage qualifications became looser. Standards have tightened today, but lenders will always give borrowers the maximum amount they qualify for – not necessarily what they should spend.
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Thirty years ago and more, most people had their retirement covered by a pension and could count on Social Security. Today, retirement savings are more typically individually funded in 401(k)s and IRAs that come directly from your budget.
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