Spring season has begun, and houses are going up for sale across the country. Prices are low, and there are plenty of other good reasons to purchase real estate right now. However, be sure that you avoid making one of these missteps.
Considering your house an investment.
(Yale economist Robert Shiller) found that except for a brief period after World War II and the boom between 2000 and 2006, the inflation-adjusted return on housing has been zero. Zilch. Nada. And Shiller's analysis didn't factor in the considerable costs of maintaining, repairing and modifying a home.
Your house is a place to live with tangible and intangible benefits -- you don't need permission to paint or decorate, and you have a place to call "home sweet home." However, depending on where you live, renting may be a far better financial option.
Buying too much house.
Your lender and your real-estate agent will try to tell you how much you can afford, but they don't know your goals. Ever heard the expression "house rich, cash poor"? Weston advises, "In general, limiting your housing costs -- including mortgage, property taxes and homeowners insurance -- to 25% of your gross income will ensure you have enough money left over to cover other goals, like retirement savings."
Overpaying for a mortgage.
Lenders are mighty picky about whom they extend credit to. Money Talks News explained how to get the best mortgage deal in three steps:
- Increase your credit scores as much as possible.
- Research interest rates and call the lenders to learn about fees.
- Get lenders to compete for your business.