For all the tales of woe during the real estate downturn, many new homeowners see their purchase as a good move. Debbie Grose, a financial advisor at Lighthouse Financial Planning in Folsom, helped 32-year-old talent acquisition manager Pranav Damle and his wife walk through their decision to buy a 3-bedroom, 2-bath house in Folsom last year. The couple says they are happy to have a place to plant a garden after years of renting. They’re also not complaining about the fact that their house has appreciated by more than 20 percent since they purchased it.
Still, there are plenty of bad reasons to buy. Here are a few:
“Real estate is going up. I have to get in now.” If you buy now because everyone else is doing it, you’re doing it for exactly the wrong reason, says Marc Bacsafra, a financial planner at Fountainhead Wealth in Sacramento. Think about how owning a home aligns with your financial goals, because trying to time the market is a bad idea in any area of investing.
“Paying a mortgage is a way to force me to save.” If you have trouble saving, a mortgage may not improve your odds. Home equity loans make it easy to pull money out of your house, says Alan Moore of Montana-based Serenity Financial Consulting. A 401(k) is actually harder to drain because of the early-withdrawal penalties.
“My mortgage will be the same as my rent.” Maintenance and capital costs, property taxes, insurance, homeowners association fees and the like quickly add up. Unless you factor these into your calculations, you’re in for a surprise after you buy.
“I can’t pass up the mortgage interest deduction.” The majority of homebuyers can’t take the mortgage tax break because they don’t itemize their deductions, according to Moore. So if you’re figuring it into the benefits of buying, make sure you’re in a tax situation that will allow it.
Brian Collins is a 26-year-old director of accounts at Sacramento-based mobile applications marketing firm Appency. He makes what he calls “decent money,” is putting lots of it into a 401(k) and has an eye on his financial future. And, like most people his age, he’s decided that buying a house is not part of the plan.
Remember the wild days of the real estate boom when you could buy a house with nothing down? You still can. Well, maybe you can’t, but a very select group of wealthy buyers can.