Wednesday, October 14, 2009

Safeguarding your home purchase

This is a really good article that I received from Axiom regarding the decision between renting vs. buying:

There's a lot of speculation out there as to whether the recession is entering "recovery mode", or if we could see another dip. The ambiguity in economist opinions can make it difficult to decide whether now is the right time to buy - especially if your market is seeing a lot of bidding wars.

Here are a few things to consider before taking the plunge (or not)...

1. Is now the right time for you?
Forget about market conditions, interest rates or the fear of "missing the boat" and think about your life situation. Are you at a point in your life where you're ready to grow roots - or do you still have the travel bug, or a potential job transfer, in your future? Do you still have a few more years of city life in you, but can only afford to buy in the suburbs? Would buying greatly strap you down financially? If so, maybe taking the time to save for a larger down payment is the best move for you.

2. The five-year rule.
While it may be hard to look five years down the road, buying a place that will suit you for the next five years is the best way to ride out temporary market fluctuations. What are your goals over the next five years? If you're planning to start a family, a one-bedroom condo might not make the most sense.

3. Location, location, location!
Most of the time, buying in a popular location or on a coveted street will insulate you from market fluctuations. Remember the old adage - purchasing the least expensive home on an expensive, high-demand street is always better than buying the most expensive home on an inexpensive street. If you're looking to buy a home that will get you the most bang for your buck upon resale, look at up-and-coming areas that show promise of development over the next five years - such as new transit lines or housing developments.

4.Do your research.
The market is hot right now - which means you have to go into every real estate purchase, or bidding war, with a level head. Know what your desired property is worth, and head into every transaction with that number in mind - and don't go over it. This is probably easier said than done, but the last thing you want to experience is buyer's remorse.

5. Weigh the pros and cons of renting vs buying
for your particular situation. Putting money towards a mortgage every month is better than paying rent in many cases, because even if housing prices don't increase, you're building equity in a home of your own, rather than someone else's. That being said, if you have a very small down payment, and you can't comfortably qualify on a 25-year amortization for the type of property that you want, maybe you need to save a bit more. Figure out what a monthly mortgage payment would be, and save the difference between that and your monthly rent cost.

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