Monday, October 22, 2007

In over your head

Ever felt like that roof over your head is a tomb covering? It sure can feel like that if you’re not ready to own a home. And plenty of Americans fall into that category.
In 2000, 10% of homeowners were spending at least 50% of their income on housing. That’s bad enough, but it wasn’t the worst. Last year, that number had jumped to 37%! One out of every three people in the country have way too much house! That leads to not having money. Not having financial peace puts a strain on marriages and families, it leads to being an unproductive employee, and a lot of unnecessary pain. If you don’t buy too much home, you can avoid all that.
A good number to use is this: your house payment should never be more than 25% to 33% of your take-home pay on a 15-year, fixed-rate mortgage. That way, the payment stays manageable and doesn’t eat up too much of your paycheck.
A big reason for so many people overbuying is because too many people bought into the myth that you have a house. The myth that renting is just throwing away money, and that sophisticated people get a mortgage and the tax deduction.
You don’t rent a home just so you can rest on your laurels. If you are in an apartment or rental home, have a game plan for being able to buy a house. Make a budget so you know where your money is going. Save up your baby emergency fund, pay off your debts with the debt snowball. Then, when you are debt free, fully fund your emergency fund to 3-6 months of expenses. Then start saving up for the down payment on your house, which is at least 20%.
Don’t believe what people tell you about how you “have” to own a home. If you buy a home when you can’t afford it, or if you buy a home with debt and no savings, the house will become a curse. Murphy will move in your spare bedroom. The roof may start leaking or you may have termites. Since you have no money to fix it, you’ll borrow to make repairs, and your deep debt hole gets even deeper.
Admit it; you won’t sleep well at night if that happens. Don’t own a home just so you can say you own one, or because your broke friends say you should. Don’t think that there is only one perfect home out there that you simply MUST have right now. That’s not true. A house is a covering for your head. A home is what you build for you and your family. There’s a house around every block. Only you and your family can create a home.
Source: USA Today This article was written by Dave Ramsey......

Note from Lucy: I have know several people who purchased a house before they could really afford to do so and now they are going thru big financial troubles.


At 1:49 PM, Blogger OldOldLady Of The Hills said...

I think that is all very good advice...I know that I am glad I bought my house when I did....Because I couldn't have afforded to buy it withing about 5 years from when I first bought it....Luckily I was able to habdle the finances of it....It is so hard now for young people. I don't know how they do it. Owning one's own home can be a very very meaningfull thing. It certainly has been for me.

At 8:04 PM, Blogger Leslie said...

This is exactly whay we're waiting. Renting an apartment for less than a fifth of our monthly income isn't bad at all. It's just 1200 sq. ft., but that seems to be just enough room for now. Besides, we have plenty of time to find the house we really want instead of buying the first one we can afford or think we could possibly afford.

At 11:42 PM, Blogger Jim said...

I used to want to live in a pretty nice subdivision down by Clear Lake.
I figured we could afford the house but my ex reminded me we would be wanting to keep up with the Jones who would be neighbors.
And we couldn't afford that.

At 8:04 AM, Blogger Oh great One said...

Great advice. I think there is something to be said for a "starter house". We bought a small house for our first and we were amazed at everything home ownership entailed.

At 2:02 PM, Anonymous Anonymous said...

I want to move, but the new mortgage I keep feeling will be to much to do. I'm to scared to make the leap. So we stay here with our smaller house and smaller mortgage.

At 5:14 PM, Blogger Granny Annie said...

I worry so much today about the young people who go into hock for a house and automobile before they can afford both. They want so much to be a apart of the "in crowd" but they can't afford to be.

At 12:23 PM, Anonymous Dawn said...

Right now our house may not be as big as some of our friends but we don't have a mortage as big as they have either. We have a friend that's about to get in way over his head, but he won't listen.... Great article!

At 8:49 PM, Blogger Big Dave T said...

Very topical blog, Lucy. There are a great many homes for sale in my subdivision and THEY'RE NOT SELLING. This despite gimmicks like auctions and rent-to-own plans.

I do feel bad for the younger generation since wages for the average worker have not kept up with the cost of housing. My parents bought their first home for $5,000. We bought our first home for $50,000. Now, the average price of a home in our area is close to $200,000. Ridiculous!

At 4:03 AM, Blogger OldOldLady Of The Hills said...

Thanks for your visit Lucy...About Lena Horne---She doesn't sing anymore...I think that last clip of "Maybe" where she was singing in 'The Supper Clun' was one of her last public performances. She has made some recordings but that is it. She was 77 years old in that "MAYBE" Clip...Amazing performer....!

At 7:10 AM, Blogger Granny Annie said...

Our children would like for us to be more in debt to own a more prestigious home. We like this place, though it is indeed a fixer-upper. We know so many people who live in mansions and drive expensive cars but they don't have cash to pay for dinner out. Comfortable living and a nice nest egg -- that's what we like.

At 9:29 AM, Blogger Lucy Stern said...

old lady of the hills - It is hard for young people of today to buy that first house, but I think that they need to save up some money first and buy within their means. I'm glad we bought our house when we did too.

leslie - you are smart to wait till you can afford it. Get out of debt first and then start saving. I got my car paid off last week and it feels great.

jim - I'm glad you didn't stay in a house that you couldn't afford. Keeping up with the Jones can stressfully kill a person.

oh great one - my mom and dad bought their starter house a year before I was born and raised 4 kids there. Dad still lived in the house when he died. They never could afford to go larger. When dad died, the house had been paid off for years and he lived his retirement out comfortably.

daybyday4 2day - Stay where you are at, with the kids starting to move out, the house will start to look bigger. It will be a lot less stressful living in a house that you can afford.

grannie annie - I think some of the younger generation want instant gradification and they don't realize that you have to work your way up....

dawn - It's nice to have that smaller mortgage payment, not near as stressful....Notice that I keep repeating the word stress. You will never guess what the topic was at last night's stake welfare meeting.

big dave - you have hit the nail on the head. Housing has gone up tremendously in the years since we bought our first house. TF and I bought our first house back in 1974 and paid $ 19,500, sold it in 1982 for $ 55,000. We were shocked at the increase but we paid $ 69,500 for our next house. The next house we bought was in 1992 and we paid just over $100,000. We are still living in that house. Now we are thinking about retire and what we want to do with that.

grannie annie - please don't go more into debt to please your children. Stay in your house and be happy that you can afford the payments. Myself, I would rather live with less stress. At our age, a nest egg is important. Security is where it is at..

At 6:31 PM, Blogger Daisy Paige said...

This post makes me feel so much better about the financial decisions we're currently making. We had several opportunities to buy a home in Las Vegas with 'creative financing' (we have good credit and no debt, but still working on saving 20% to put down) when we moved there, but decided against it for several reasons.

Two years later my husband got transferred to Utah, the value of the home we were renting had dropped more than $40k, and we were beyond grateful that we weren't among those trying to sell. We live well below our means, and with one more year of renting, we should *finally* be able to buy, even with contributing a large chunk of change to our 401k and IRAs.

I can't wait to own my own home, but I can wait long enough for it to make good financial sense. Thanks for this post and the comments, everyone. I feel so validated!!


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