With interest rates being at an all-time low, I can understand the urgency for people wanting to purchase a home. But I caution the first-time home buyer to learn how to budget their money before buying a new home.
I happen to live in a state with one of the highest foreclosure rates in the country. I was so shock to learn that many people loose their homes within the first couple of years. I wondered why so soon. Sure the economy is not the best and people are getting laid-off and having hardships, but some people are simply not prepared for the unforeseen problems and expenses that comes with owning their first home.
When I received a call from a friend telling me about a property less than a mile from my home that was in the process of being foreclosed on, I quickly made arrangements with their agent to view the property. It was a nice single family residence with some minor wear and tear. The family that was loosing the home was a basic middle-class family. I had less than three weeks to close the deal since the home was to be sold on the courthouse steps the following month.
Needless to say I bought the home and had instant equity in the property. Before the closing, I sat down with the previous owners and asked why they were loosing their home. The wife said to me in a matter of fact way, "Well we started falling behind on some bills, and soon things got out of control." I wanted to ask her if she had a budget, did they keep track of their monthly expense but I didn't want to impose on their privacy. However, I explained to her that I was a Financial Coach and worked specifically with people to help them customize a budget. She promised to get in touch with me after the transaction but I never heard from her again. I often wonder if things would've worked out differently seeing as if they had utilized a budget before and after buying their home.
I share with my clients some advice I heard from one of my financial mentors. Before buying a home, put aside the difference of your rent from what will be your mortgage payment, taxes, and insurance for six months. If you can manage without going into the money or finding it to be a hardship on your lifestyle then my advice is too update your budget with the category "repairs". Take 1% of your purchase price, divide that by 12. If you can budget this monthly cost into a separate savings account you are ready to become a first-time homeowner.
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Dina Harbour, Founder:
Wanted Debt Or Alive:
A Debt and Money Management Consulting Service.
Please visit my website at: http://www.wanteddebtoralive.org