Did you hear what a famous economist said about the upcoming troubles in the US economy?
First… I remember a time about two years ago, I was driving around with a new first-time home buyer shopping for a no money down USDA loan out in the outskirts of Queen Creek.
My client had a pre-qualification letter in hand and we were shopping. As we were driving around in my car and talking I started getting an uneasy feeling about his financial situation.
I told my client about issues we have with some East Valley lenders getting deals closed and convinced him to get on the phone with my lender.
Sure enough what I learned from the conversation shocked me. My buyer client had at most a couple hundred dollars in the bank.
Somehow, because he had a “stable” job he still qualified for a loan on a house.
We got into a conversation and I started to really try and talk him out of buying a home. Yes you heard me right, I was real estate agent who was trying to talk a first-time homebuyer out of purchasing their first home at the time.
Let’s look at a few of the detail. Prices were at about an all time low, interest rates were at a historic low at the time, my client had a steady job and I was trying to talk him into not purchasing a house.
The argument my client kept making to me was “I pay rent for $900/mo. My home and HOA payments are going to be $850/mo. It only makes sense to purchase and not rent.
Well, it would not have been wrong if that was the full story, but home ownership is about a lot more than rent payment vs PMI/HOA payment.
What happens when the garbage disposal jams and starts leaking in your rental. You call the landlord.
What do you do on the June afternoon when we finally hit our first 110 degree day of the year and your ac unit starts shooting water down your roof and no cool air is coming out. You call the landlord.
What happens when the tub gets a slow leak behind the wall, you put it off for a while because it is not that bad, and then a black organic substance starts building up which finally gets you to…. call the landlord.
All of these are issues of varying degree that factor into the cost of homeownership. When you are the renter they are usually the responsibility of the homeowner, but when you are the homeowner, they are your responsibility.
There are things that you can do to lesson your risk like obtaining a home warranty. But nothing is going to protect you 100%.
Am I saying you should not buy a house? Of course not. A home can be a wonderful blessing and a good investment. What I am saying is, be careful you know what you are really getting yourself into. Know the true costs of homeownership and make sure you have an adequate emergency fund ready to go incase something happens.
David Rosen, a Canadian economist for the firm Gluskin-Sheff made a lot of news this week after he was written about in the Business Insider. Rosen goes into great detail on how the US is only about half way through this financial mess. Now while the housing market in Phoenix and Chandler may be way past that point, in general the economy may have a few more bumps in the road before things level out.
What does this mean for you? We are not out of the woods yet. You need to really make sure you are financially secure before you buy a home. And I don’t mean the minimum before a lender will give you a loan. I mean so that if something happens, an ac unit goes out or you lose a job for a couple of months you are not going to end up in foreclosure.