Buying a home is one of the most stressful things you can do — and that’s if everything goes beautifully.
But when deals start falling apart, or you wonder if you’ve really thought of everything, the pressure can really get intense.
Home buyers, particularly first-time buyers, who ignore the emotional quotient of a house deal, can end up feeling frustrated with the process and angry at the pace of the deal. Taking some time to think through the deal and plan out how you’re going to cope can help keep frustration and anger in check.
Issues involving money are often a big emotional trigger when it comes to buying a home. These days, many home buyers come to the table saddled with a huge debt load. They have credit card debt, car loans, school loans and sometimes even personal loans.
While debt-laden buyers might be able to afford a house payment (after all, they’re making their rent payment each month), there are trade-offs and compromises that have to be made. You can’t have it all — you can’t stretch your income to buy a bigger house or property if you’re already stretching it to cover massive debt payments.
Learning this the hard way (by being turned down for a loan at the mortgage lender) can be enormously frustrating. But if you plan ahead, you can give yourself a reasonable amount of time in which to accelerate your debt payments and start to pay down the debt. Lowering your debt-to-income ratio will allow a lender to approve you for a bigger mortgage.
It’s also important to figure out how much house you can really afford. While you might want to live in a million dollar mansion, can you really afford those house payments?
There are creative financing techniques that might allow you to get approved for that loan at today’s low interest rates. You could get an interest-only loan or even go with an option ARM (adjustable rate mortgage). Either of these loans would give you a higher mortgage amount than a conventional loan that requires you to pay interest and principal each month.
But at what cost? With the interest-only loan you’re at least paying the total amount of interest you owe on the loan each month, but nothing toward the principal. With an option ARM, you’re paying just a fraction of what you really owe each month on the loan, with the extra unpaid interest tacked onto the loan balance. At the end of five years, you could wind up owing 10 percent more with an option ARM loan than the amount you borrowed.
Knowing exactly how much your mortgage will cost over the period of time you live in your house allows you to plan out your finances. It helps you decide exactly how much debt you want to take on and give you an idea of how you’re going to handle the increased payments each month. All of this planning can help keep emotions out of the deal.
Another home-buying money issue that’s fraught with emotion concerns how non-married partners will pay for their purchase.
If you’re unmarried and buying a house with someone else, there may be some confusion about who is going to pay for the various expenses associated with the purchase, including the mortgage, homeowners insurance, real estate taxes, maintenance and upkeep.
Most couples or partners don’t talk about how these expenses are going to be divided. Will you have a joint checkbook that each partner will contribute to in order to pay the expenses? Will you each write a separate check each month? Will one partner pay some of the expenses and the other partner pay the other expenses?
If you talk with your partner ahead of time about these expenses and how you’re planning to pay for them, you can hire a real estate attorney to draw up a partnership agreement that specifies who will pay for what and how the property will be owned. Putting your agreement down on paper will go a long way toward keeping everyone’s emotions at bay.
Finally, it’s important to talk with your spouse or partner about what they hope to get out of this home purchase. While many home buyers look at a home as an investment, it’s also a place to live. The truth is buying a home isn’t always about making money.
When you shop for a home, you want to buy one that makes you comfortable and safe, and is a place where you and your family will be happy. It has to be the right neighborhood for you, not necessarily the place where you will make as much money. But it’s good to have everyone put their thoughts about the subject on the table so you can discuss it openly.
Having a thorough understanding of where each person is coming from is the best way to keep the emotional quotient of the deal under control.
Aug. 26, 2005.
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