Evelyn Bruder’s Dream Team blog

We Sell Homes and for most people buying a home is a wonderful thing. They will get pleasure out of living in a home of their own. It represents the largest asset for most people, and it is the only source of forced savings that they have.

BUT… Here are 3- Bad Reasons to Buy a Home

This article from May, 2007 was in the Money Section of MSN. The bulk of this BLOG comes from that source because it truly captures the negative, or things to be aware of, side of the homeownership debate.

Yes, we’ve all heard the reasons that everyone will benefit from homeownership. Here’s why that’s not necessarily so.

During the recent real estate boom, people were terrified about being priced out of the real estate market so their was pressure to BUY right then.

Now we’re seeing some of the fallout. Some home buyers used interest sensitive loans rather than conventional 30- year fixed rate Mortgages. They are now horrified by their ever-rising mortgage payments. Lenders are finally tightening up ridiculously loose lending standards, just at the point where many people are realizing they can’t afford the mortgage they have and desperately need a new one.

People who were afraid of missing out on the “easy money” of home-price appreciation are now anxiously realizing that what goes up can also come down.

Foreclosures are spiking. Sales and prices are stalling. Don’t buy a house when it’s not something you want or need. It’s a fact that homeownership is a great way for most people to build wealth over time. But that doesn’t mean everyone should be a homeowner. It’s a bigger commitment and more expensive than most first-time buyers ever realize. You should have a clear idea of what you’re getting into before you commit to 30 years of payments — and you should be aware of the following popular myths.

Myth #1. It’s a good investment

Sometimes yes, sometimes no. Â Nationally, home prices rose 50% between 2000 and 2005, and in more than 30 cities — including San Diego, Los Angeles, Miami and

Washington, D.C. — prices doubled. But that’s not the norm. In the 30 prior years, from 1969 to 1999, the average appreciation for homes exceeded the inflation rate by a little more than 1 percentage point. Compare that to stocks, which bested inflation by 7 percentage points in the same period. And appreciation isn’t a given. Homeowners in many metropolitan areas are faced declining prices.

So far, the price declines have been pretty mild. Let’s hope we don’t see a repeat of the real estate recession in many markets during the 1990s. Prices dropped more than 20%, and in markets like

Los Angeles, and it took almost 10 years to regain their peak values.

It is an ugly cycle that, once started, is hard to stop.

Even when prices are perking along normally, though, your home may benefit your bottom line less than you think. Home-price appreciation figures don’t take into account the considerable amounts homeowners shell out along the way. The Wall Street Journal once estimated a typical homeowner over 30 years would pay nearly four times the house’s purchase price in maintenance, repairs and improvements. A home is primarily a place to live. Its value as an investment is secondary and certainly is no replacement for a well-diversified portfolio of stocks and bonds.

Myth #2. I’m tired of throwing away money on rent

Normally, renting is cheaper than owning, and in some cities, soaring real estate prices of the past 5 years have made renting so much cheaper that it’s getting really tough to make the case for becoming a homeowner.

Be aware that you may be able to rent an affordable place in a good neighborhood instead of straining to buy a less desirable home.

We always see many people who have stretched themselves way too far to buy houses.

They opted for adjustable mortgages or loans with exotic terms; what initially seemed like reasonable payments suddenly spiked, throwing financial lives into chaos and contributing to the current high delinquency rate.

You’re not really throwing money away when you send a check to your landlord, anyway. You’re exchanging it for a place to live. You’re also getting flexibility and freedom. Â hen you’re a renter, it’s the landlord, not you, who is generally responsible for maintenance, repairs and the toilet that blows up in the middle of the night. If the neighborhood should start to slide, or you get or lose a job, you can up and move, often with just a few weeks’ notice. It’s true that you may have to deal with rising rents and recalcitrant landlords, but homeowners stuck with rising taxes and maintenance costs.

Moving is never fun, but moving when you own a home is an expensive, time-consuming process. Finding a buyer can take months and you should figure selling costs will eat up about 10% of your home’s value, once you add agent commissions and moving expenses.

Myth # 3. I need the tax deduction

Buying a house just for the mortgage break would be like giving somebody a buck just to get 35 cents or less in return. That’s because your write-off is limited to your tax bracket. If you’re in the top federal tax bracket, every dollar you pay in mortgage interest only saves you 35 cents in taxes. Most people get even less, since they’re in the 25% or lower tax brackets.

Don’t misunderstand — the tax break is nice, and you need somewhere to live. But you should make sure you can really afford to own a home before you take the plunge.

Remember that many of the real costs of owning a home aren’t deductible. Uncle Sam won’t give you a break for insurance, repairs or maintenance, and those costs can really add up.

Most homeowners should plan to spend at least 1% of their home’s purchase price each year on maintenance and repairs, and sooner or later a big expense will come along — a new furnace or roof, for instance — that could consume a large amount of your savings.

You can’t ignore these expenses because, If you fail to maintain your home properly, you’ll pay even more when it comes time to sell. Many buyers won’t even bid on a property that shows significant neglect. Even in hot markets, buyers are likely to ask for expensive concessions to pay for the repairs you should have been doing all along.

We should not fail to mention the big, positive tax benefit that does come to the homeowner who sells and has considerable equity in their home from Mortgage Pay down, plus appreciation. $250,000 of that gain for single tax payers, and $500,000 for married taxpayers comes to you tax free and you do not have to buy another home.

The best advice on the issue of whether to buy remains the time-tested version: Do it when it’s right for you.

Home ownership is best for you if you can agree with all the following statements:

• I plan to stay put for at least three years. If the real estate market in your area is weak, you may need even longer for price appreciation to offset the costs of selling and moving.

• I can swing all the costs involved. That requires, most importantly, having enough cash for a decent down payment (which in today’s lending environment may mean at least 5% of the purchase price). You should use fixed-rate mortgages — the 30-year variety. Use hybrid loans that are fixed for as long as you plan to remain in the house. If you are contemplating a less traditional loan, make sure you find out how high the payments can go and determine whether you could afford to pay them.

• If you can’t make the payments without stretching your finances, you probably can’t afford to buy a home. Then make sure you can afford all the incidental costs, including taxes, insurance, repairs and maintenance. It’s not a bad idea to limit your total housing outlay to 25% or 30% of your gross income, especially if you want to have money left over to save for retirement, fund your children’s college educations and take the occasional vacation.

• .Houses are expensive and complicated to buy, finance and maintain. Appreciation is far from a given. If you don’t have a strong desire to own your own home, and do what it takes to keep them in good shape, you’re probably better off remaining a renter — at least for now.