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First Time Home Buyers: A Home is a Liability, Not an Asset and You Should Plan Accordingly

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scritto da: slc - Visite: 0 - Numero di parole: 648 - Data: 26 Jan 2012 - Ora: 10:37 PM 0 commenti

Yes, you heard that right. Your home is not the biggest investment you’ll make in your life. In fact it’s just the opposite: It’s probably the biggest liability you’ll be taking on and you had better think it through clearly before making a decision. Unless you own the home outright, or it is providing positive cash flow as an investment, it is not an asset.

About a decade ago, before the nation’s new found fiscal responsibility had come into vogue; I realized that it was common for Americans to stretch themselves thin. An unexpected job loss, or worse yet an illness, could place a family in a foreclosure situation relatively quickly, and that was when the economy was good. While we slowly work out the kinks of this current economic climate, a conservative approach to a first time home purchase is highly recommended. Although to be honest it’s probably not bad advice no matter how the economy is doing.

These days “home equity” almost seems like a concept of the past with millions of homeowners underwater on their current mortgages. That should not dissuade a young or first time home buyer from the idea of creating equity and eventually turning your home into a true asset. There are two ways to do this quickly and safely.

The first is simple: Buy less home than you can afford. Yes, that last home you looked at was alluring, and you were willing to stretch that budget a bit, but have you taken into consideration the true cost? Higher utilities, higher taxes, more work, higher insurance, and a higher mortgage payment just for starters.

Buying less than you can afford also helps create a safety net in case of financial emergency. As a couple, you should ask yourselves if one income could cover the payments if one of you were to lose their job? If not, then perhaps you should reconsider. I can tell you from firsthand experience how handy this came in 2008 and 2009 for me. In 2008 my wife was laid off from her job. Right after she found a new employment, I became ill for nearly a year and was unable to work. If we had not under bought based on our needs we would have probably lost our home.

The second is to buy your home with a 15 year mortgage. Fifteen year mortgages help pay down equity fast, and nothing is more exciting than seeing that balance go down. The principle portion of the payment will exceed the interest relatively quickly, and you’ll be on your way. Think about it, if you bought your first home when you were 30, you could have it paid off by the tender age of 45. What a concept: A place to live and now you also have a true asset. Imagine how life changing that is to pay off your home.

Yes I’m a contrarian, so listen up first time home buyers: Buy less home than you can afford and pay it off as quickly as you can. You deserve it!

When listing or buying a property it is essential to have a Realtor who knows the community, understands the Tampa real estate market and can price a home correctly. If you are interested in buying or selling real estate in the Tampa Bay area, I would love the opportunity to work with you. Please call me 813-924-4468 or use the contact form on the left side of the page.