This site is best viewed using Mozilla Firefox browser.

Real Estate

1969-12-31 18:00:00

Want the house - but don’t like the commitment

How do I make the commitment to a mortgage?

ANSWER: There is the fact that getting a mortgage can be intimidating for some. But the anxiety is much worse than the actual act of getting it done. There is more paperwork involved in getting a mortgage than there is in signing a lease. You have to reveal financial information about yourself and your job history, and you usually have to wait a little longer to be approved for a mortgage than you do for a rental agreement. You can focus on those negatives, and all that extra "commitment" and responsibility that a mortgage entails, or you can focus on what you are getting for that money. If you look at how the stock market has performed in recent years, and then compare it to many housing markets in the United States, you will see that putting your money into real estate is almost always a safer and a smarter investment. I am not telling you to stay out of the stock market. I am, however, pointing out that no matter how well Jollystick Jumpers, or any other stock, is doing, you cannot live in your stock certificates! Not even if the shares split. Twice! Nor will they keep the rain off your head and give you and your children a warm, comfortable and safe place to sleep. There is also the simple fact that despite what your stocks values  on paper are today, tomorrow or next year, you can only really benefit from them if and when they pay dividends, or when you sell them. The benefits of owning a home conversely, are always there. A friend recently told me that he would never buy a house because he refuses to go that far into debt. He can deal with the few thousand dollars he owes to various creditors, but the idea of taking out a 30-year loan for more than $100,000 and still be paying it off on his 60th birthday is just more than he can handle. It's too much debt, too much responsibility, and too long of a commitment. My friend said he just wouldn't do that to himself. But buying a house for someone else by paying rent checks every month on a house someone else owns sounds good to him? One of us is confused! Yes, $100,000 -- or whatever amount you borrow to buy a house is a lot of money to owe. Homes are not cheap. And yes, a mortgage is probably the single biggest loan you will ever take out.  And the home you buy with it is probably the single biggest investment you will ever make. As we will see later, it is also very likely the single biggest tax deduction you will ever have. My friends real problem, however, is that he is not asking himself the right question, which is: "If I am not spending money on mortgage payments, what am I spending money on in order to have a roof over my head?" The answer is simple. It's rent. Whether you write out a check to your landlord every month or to your mortgage company, you are still writing out a check every month. If you buy a home with a 30-year note, or any other term mortgage, then that means that when you send out your mortgage check you are building equity in your home. This accumulates into your share of ownership. If you stay there for the full 30 years and pay it off, you get to stop writing those mortgage checks. The home is yours for as long as you live there. You can sell it and pocket the profits, or you can will it to your children. If you pay rent for the next 30 years, at the end of those 30 years you will have to continue to pay rent if you want to keep living there, or anywhere else. The place is not yours, and you have probably paid off your landlords' mortgage, which means that your monthly rent check has paid off the home for your landlord, not for you or your family. Your landlord loves you! While it is true that you are still paying property taxes and utilities even after you pay off your mortgage, the simple fact is that you are paying property taxes and utilities when you rent. They might not be formally listed as property taxes and utilities, but they are included in your monthly rent. There are also the income tax benefits of owning a home. While some states offer a small rental credit on state taxes, it is only a tiny fraction of the federal tax break you get with a home mortgage. When you buy a home, in most cases you can deduct all of the mortgage interest you pay. Since mortgages are front-loaded, and you pay most of the interest during the first few years, you get major tax deductions in the early years of a mortgage.  And remember, you would be paying the same thing in your rent payment, but without the benefit of the tax deduction. Another issue is the down payment. It does cost money to buy a home. There are, however, numerous low or zero down payment mortgages backed by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA). Even conventional lenders have programs that require low or no down payments. There are also special grants and other programs to help low-income earners get into their first home. Getting into an apartment is not cheap, either, with first and last months` rent, security and pet deposits required before you move in. While we can all understand "fear of commitment," it is important to remember that living with the alternative can be worse. It's a lifetime commitment if you decide to pay rent rather than owning the home for yourself. More next month...