But you must take a disciplined, pragmatic approach to homeownership. In the easy-credit days before the crisis, homebuyers took harmful shortcuts, buying property without solid credit histories, with no money down, and with unrealistic budgets. A good number purchased “McMansions†they just couldn’t afford, leapfrogging from renters to the owners of palatial dream homes without regard to expense or a full understanding of the loan agreement.
Here’s how to approach the process in today’s environment. First, keep your financial house in order–no pun intended–by eliminating unmanageable debt, avoiding nonessential consumption, increasing savings, and preserving credit. Next, reconcile that homeownership is a lifelong process that requires patience, discipline, and guidance.
Beginners should save at least the 20% down payment for a modest starter home to avoid private mortgage insurance, which I consider a costly “second mortgage†payment. In this stage, you should take the opportunity to learn about the financial, tax, and legal implications as well as strengthen your credit and build equity. Only as family and space requirements grow, in concert with your income, should you even consider acquiring a larger home.
At every step of the way, find a home that suits not just your physical but your fiscal needs. According to the National Foundation for Credit Counseling, the rule of thumb is to spend no more than 30% of after-tax income on housing. At the same time, sock away enough money for property maintenance and other emergencies. And don’t even think about applying for a second mortgage to fund lifestyle purchases and other frivolities. Focus on effectively handling your money matters so you can eventually own your home outright.
Your property can serve as your most important investment. Managed properly, it can become part of your story of prosperity and wealth instead of another tale of financial woe.