Secrets That Reveal How Buying MORE Can Cost Less!
When looking for real estate, buyers often discover that no matter
what price range they explore, the house they REALLY want to buy, the
house containing EVERYTHING on their current 'wish list', is always
just out of their reach. Amazingly, this phenomena occurs whether the
couple is settling for a $150,000 home, while yearning for a $200,000
property; or inspecting a $500,000 house, while longing for a $600,000
With interest rates low and housing prices on the rise, justifying
that 'stretch' to get your dream house may be easier than you think.
In the long run, after factoring in appreciation and tax benefits, you
might just end up putting out LESS money for MORE house.
Here are some reasons to contemplate
increasing the price range of your home search:
Advantage #1... O.P.M.
The leverage you gain using Other People's Money is one of the nicest
parts of buying a home. With interest rates attractively low, you may
find you have the ability to qualify for a higher mortgage amount than
you originally thought. A small down payment, (usually no more than 10
- 20 % of the purchase price), is all the cash you may need to
contribute to the purchase price. Even so, as the property increases
in value, you reap the benefits of the total asset. Therefore, if you
buy a house for $150,000, with $15,000 down, and that home appreciates
10% a year for the next two years, you will have amassed $30,000 in
additional equity. That's a 200% return on your original investment.
If you stretch a bit, and buy the $200,000 home, your gain would be
$40,000 in two years.
Advantage #2... More Tax Benefits
The interest you pay on your mortgage is tax deductible. So, the more
you borrow, the greater your tax shelter. Think of it, at the same
time your larger house is making you more money through appreciation,
the government is also allowing you a bigger tax allowance. It doesn't
get much better than that!
Advantage # 3... More Stability
If you are like most people, you HATE to move. Besides all the packing
and unpacking, there are the other costs -- financial, physical, and
emotional -- associated with relocating. The 'closing costs' alone
involved with selling and re-buying a home can account for thousands
of dollars (real estate commissions, transfer tax, and various
'certificates' on the seller side: points, title costs, etc. on the
buyer's side). Add to this the time and stress involved with settling
in at a new location, and you have powerful reasons for trying to stay
put as long as possible. Buying that bigger (more expensive) home may
allow you to do just that.
Advantage # 4... Getting What You Really Want
The most compelling argument for stretching your purchasing power
might well be the joy you will feel each time you come home to the
house you REALLY wanted!
Since few things in life are simply black or
white, here is the flip side: Reasons you may NOT want to stretch your
Disadvantage #1... What Goes Up...
While housing prices may continue to rise, they may also fall. Past
history has shown that the law of gravity certainly applies to the
housing market. Interest rates, regional economies, even weather
conditions can drastically alter the value of a home. At the very
least, you need to look at the possibility of that $600,000 dream
house being worth $500,000 ... or less, and ask yourself the question,
"What if this happens, and I have to sell?"
Disadvantage #2... Job Security?
Gone are the days when the average person can count on working for a
company for 25 years, retiring with the pension and a gold watch.
Taking on a larger mortgage probably means you have to continuously
produce income at the same level (or higher) for many years to come.
You need to ask yourself the following question: "How secure is my
job?". Look at the company, the industry, and the region. While no one
can predict the future, don't let the possibility of downsizing, or
out-souring, or consolidation catch you completely by surprise. In
addition, ask yourself, "Do I like what I am doing?" The ability to
just pick up and pursue a new career might be severely limited by the
financial pressures of a larger mortgage.
Disadvantage #3... And Baby Makes Three...
Many young couples purchase a home as the first step to starting a
family. Stretching the limits of your qualifying range often means
that both the husband's and wife's salaries are needed to meet the
demands of an increased payment. This is true not only at the time of
the purchase, but for years to come. You need to ask yourself the
question; "Do future plans include both partners continuing to work
after the child/children are born?"
So, there you have it. Whether you choose to go for the larger house,
or opt for a more conservative purchase will depend upon your personal
make-up. Specifically, your ability to tolerate risk. As always,
seeking the advice of a financial advisor before making any real
estate purchase is a wise move.