Buying a House

Owning a home is part of the American Dream.  There are some great financial reasons for owning a home.  For many people, having their own house gives them a greater sense of security and control over their lives than renting a home.  Over long periods of time, homes have increased in value.  This adds to the owner’s financial wealth while providing a place to live.

 

Ideally you own a home that’s worth somewhere between one and a half to two and a half times your pre-tax annual income.  There are certainly some real estate markets where that’s not practical.  You’d either end up in a house that’s ridiculously extravagant or you’d buy a tree house in someone’s back yard.  Also, it’s ideal to start with at least a down payment of at least 20% of the purchase price of the house. 

 

Many people consider paying off their mortgage as a top and urgent priority.  But if you’ve got the right type of mortgage (usually fixed interest and amortizing over a long period like 30 years), it allows you to continue building other aspects of your financial life and keeps you from having too much money tied up in one illiquid asset – your home.  Even if retirement, having a mortgage can be a good financial move.  Some people can’t sleep at night if the roof over their head isn’t paid for, so everyone needs to do what they’re comfortable with.  Having an improperly structured mortgage that puts someone in a house that’s not a fit for their finances can be a catastrophe, as the recent mortgage industry crisis is showing us.  But having a properly structured mortgage on a home can be prudent. 

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